Volatile week ahead for commodities amid US jobs, China data, and BoJ policy

Commodities outlook for current week

Commodity markets' upbeat mood following the Fed’s third consecutive rate cut was tempered by renewed fears of an AI bubble.

The US dollar closed the week (ended December 12) down 0.6 percent, extending a three-week decline, after the Fed delivered a widely expected 25 bps rate cut with a softer tone on inflation. Officials raised their 2026 growth forecast to 2.3 percent and expected inflation to ease to 2.4 percent, while maintaining a single quarter-point cut projection, signaling a cautious stance. Plans to purchase $40 billion in Treasury bills monthly from December 12 added to perceptions of easier financial conditions.

The Fed’s dot plot showed a division among policymakers on whether the bigger concern for the US economy is labour market weakness or stubborn inflation, reflecting continued uncertainty in the Fed’s outlook.

US equity markets initially rallied, with major indices hitting fresh record highs following the FOMC decision. Sentiment, however, weakened later in the week as renewed concerns over stretched valuations in AI-related stocks triggered a sharp pullback on Friday. The Nasdaq closed the week down 1.6 percent, the S&P 500 fell 1 percent, while the Dow Jones Industrial Average outperformed, ending the week up 1 percent.

Precious metals rallied sharply as the dollar hovered near two-month lows and US initial jobless claims spiked to their highest in over four years, with COMEX gold hitting $4,388 per ounce and silver surging to a record $65 per ounce on Friday. Although both metals saw profit booking into the close, with gold ending below $4,330 and silver near $62, they still posted solid weekly gains of around 2 percent and 5 percent, respectively.

On the weekly chart, MCX Gold futures witnessed an all-time high closing with weekly gains of more than 2 percent. The fifth consecutive weekly gains confirm the extreme bullishness in the counter. On the daily chart, price has been continuously holding above the 20 EMA and Supertrend (7,3), suggesting that the short-term bullish bias remains intact. As long as the price stays above the immediate support of Rs 1,29,000 per 10 gram, it could move higher in the coming week toward the initial resistance at Rs 1,37,000 per 10 gram. A breakout and sustained trade above this level could accelerate the momentum towards Rs 1,40,000. However, a break below Rs 1,29,000 could pause the current momentum and send the counter into a sideways bias.

Crude oil prices came under pressure, with WTI falling about 4 percent over the week to touch a two-month low near $57 per barrel, as oversupply concerns dominated sentiment. The IEA trimmed its 2026 oil surplus forecast to 3.84 mbpd from 4.09 mbpd, citing the impact of sanctions on Russia and Venezuela and firmer-than-expected demand, but still expects a record inventory build.

OPEC remained more optimistic, projecting global oil demand growth of around 1.4 mbpd next year and expecting supply to broadly match demand in 2026. Geopolitical risks provided limited support after Ukraine’s drone strike on a Caspian offshore field and the US seizure of an oil tanker off Venezuela’s coast. Prices briefly rebounded toward $59 per barrel following Trump’s announcement of new sanctions targeting individuals linked to Venezuela’s leadership and six oil tankers.

Base metals had a volatile and mixed week, with sharp swings reflecting the push and pull between supportive macro policy signals and uneven demand conditions. Zinc was the only metal to close higher, while copper and aluminium ended lower, despite copper holding above $11,500 per tonne after two consecutive weekly gains. Copper briefly surged to fresh record highs near $11,950 per tonne following the Fed’s rate cut. Persistent supply tightness continued to underpin the complex, with mine disruptions in Chile and Peru, declining ore grades, and permitting delays constraining output.

Looking ahead, markets face a packed calendar of economic data and central bank decisions, keeping volatility elevated. Key focus will be on China’s data, delayed US non-farm payrolls for October and November, November CPI, and flash PMI readings. Weak Chinese data could fuel expectations of fresh stimulus, supported by Beijing’s proactive fiscal stance and moderately loose monetary policy for 2026.

On the policy front, the Bank of Japan may deliver its first rate hike in 11 months amid a weaker yen and rising inflation. The Bank of England is expected to cut 25 bps, while the ECB is likely to hold rates steady in December. Markets are likely to remain jittery, as a potential rate hike would push Japan’s benchmark rate above 0.5 percent for the first time in three decades. This could prompt a reversal of the “yen carry trade,” potentially triggering capital shifts out of global equities and adding further volatility across financial markets.