US-China trade talks hold the key to commodity moves next week

Commodities Outlook

Global markets ended the week (ending May 9) on a cautious note, with risk appetite fading as investors braced for upcoming trade negotiations between the United States and China.

The US dollar held within a narrow band, ending slightly firmer at 100.4, while US equities gave up early gains and finished the week with slight losses, as traders turned their attention to high-stakes discussions in Geneva. The dollar briefly touched a one-month high of 100.8 after the Federal Reserve’s latest policy statement and remarks from Chair Jerome Powell signaled a cautious stance, with no urgency to ease interest rates. Earlier optimism around a potential US-UK trade deal had temporarily lifted stock markets.

Gold prices swung sharply through the week as prices spiked to a two-week high of $3,448 per troy ounce as a softer dollar and mounting geopolitical risks boosted demand for safe-haven assets. However, it dropped below $3,300 per troy ounce midweek as sentiment improved on hopes of progress in US-China relations, following comments from President Trump about possible tariff rollbacks. Nevertheless, gold regained strength to end the week up 2.7 percent, closing at $3,329 per troy ounce as traders grew wary again ahead of the US-China trade talks.

After a significant surge in the first two days of last week, gold futures have remained higher. The price's position above the Supertrend (7,3) and 20 EMA suggests that the short-term bullish trend is still in place. The bullish bias is supported by RSI 14, which is near 60. If the price breaks and stays above the Rs 97,600 per 10 gram first barrier on the MCX, it might test the all-time high of Rs 99,358. Conversely, the first support is located at Rs 94,750, which is followed by Rs 92,050.

Silver posted a weekly gain of over 3 percent, while crude oil climbed more than 4 percent. Industrial metals also saw early gains amid renewed hopes for a resolution to the trade conflict, following confirmations that officials from both sides would meet in Switzerland. However, base metals closed mixed after a rebound in the dollar and disappointing Chinese services PMI data, which dropped to a seven-month low, highlighting continued strain on China’s economy.

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Kaynat Chainwala

Senior manager - commodity research|Kotak Securities

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Oil prices finished above $61 per barrel and gained further after the US imposed sanctions on three smaller Chinese refiners, so-called "teapots", for facilitating Iranian oil trade, underscoring Washington’s commitment to its “maximum pressure” policy on Iran, despite earlier optimism about a diplomatic resolution.

Looking ahead, the US-China discussions are expected to be in a tentative first step towards defusing a trade war that is disrupting the global economy, rather than yield a significant breakthrough. Stakes remain high as President Trump floated the idea of imposing an 80 percent tariff on Chinese imports, although he indicated the decision rests with Treasury Secretary Bessent.

China, facing growing economic pressure and persistent deflationary signals, has struggled to reassure markets despite fresh stimulus efforts from the People’s Bank of China, including rate cuts and liquidity injections. A substantial tariff reduction by the US, aimed at encouraging a reciprocal move from China, coupled with follow-up negotiations, could serve as a meaningful first step toward de-escalation, potentially boosting market sentiment. On the other hand, continued disagreement between the world’s two largest economies could fuel risk aversion.

On the data front, US consumer inflation and retail sales data will be key to watch. The Fed has recently warned of stagflation risks, so hotter-than-expected inflation coupled with weaker retail sales could further reduce the likelihood of near-term rate cuts.

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