Powell’s testimony and economic indicators to shape commodities market sentiment

By Ravindra Rao, CMT, VP-Head Commodity Research at Kotak Securities

In the commodities landscape, the past week (ended March 1) witnessed cautious market movements, characterised by narrow trading ranges, as investors adopted a wait-and-watch stance ahead of crucial economic indicators and commentary from Federal Reserve speakers.

The precious metals market experienced notable shifts, with COMEX Gold surging to surpass the $2,095 per troy ounce mark, marking its second consecutive weekly gain. The impetus behind this upward trajectory was a combination of factors, primarily propelled by the weakening of the dollar and a decline in Treasury yields, amidst signs of a softening in the US economic landscape. The retreat of Treasury yields commenced early in the week, following a downward revision in the US Q4 GDP data.

Notably, the annualized expansion of the US economy stood at 3.2 percent in Q4 2023, a slight dip from the initial estimate of 3.3 percent and a notable deceleration from the robust 4.9 percent rate recorded in Q3. Notably, US manufacturing and consumer sentiment exhibited weaknesses in February. Moreover, January’s annual inflation growth in the US was the smallest in nearly three years.

Federal Reserve officials, in their statements throughout the week, indicated that the pace of interest-rate adjustments would be contingent on incoming economic data, signalling a nuanced approach to rate cuts.

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In tandem with gold, silver also saw a weekly rise of approximately 0.80 percent, especially spurred by a decline in the US ISM manufacturing PMI. COMEX gold is once again nearing the crucial resistance level in the vicinity of $2120 per troy ounce. If it manages to maintain its position above this threshold on a closing basis, there is the potential for a further upward trajectory in prices.

Meanwhile, WTI Crude oil surged above $80.5 per barrel, reaching its highest point in four months. This bullish trend was fuelled by signs of tightening in the physical market amid the Red Sea crisis and OPEC+ cuts. Although an unexpected US stock buildup caused a brief pullback, expectations of OPEC+ extending supply cuts into the second quarter overshadowed the negative impact.

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The upcoming OPEC+ meeting in March is now a focal point, with producers likely to maintain voluntary production limits, stabilising the oil market. WTI Crude oil is currently testing the upper bounds of an ascending triangle, encountering resistance in the $79.50-$80 per barrel range. A successful breakout from this pattern could propel prices towards the immediate resistance at $84 per barrel.

LME base metals experienced mixed trading amid concerns over China’s economic health and weak borrowing by local governments. Official PMI data revealed a fifth consecutive contraction in factory activity in February, intensifying concerns about the country’s debt-ridden property sector and low investment sentiment. Despite these challenges, market participants hold hope for a seasonal pickup in demand in March and April, particularly in the world’s largest consumer of metals, China.

Looking ahead to the coming week, investors will closely monitor the US ISM Services PMI, Powell’s testimony, the ECB policy meeting, and US jobs data. The resilience of US non-farm payrolls data in the past three months has tempered expectations for imminent rate cuts. However, any signs of weakness in the labour market could act as a tailwind for gold prices, given the Federal Reserve’s data-dependent approach.

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