Fed Comments to Spur Commodity Prices

"According to an official order, the Central Board of Indirect Taxes and Customs (CBIC) has reduced the windfall tax on crude oil production by approximately 36 per cent to Rs 4,100 per tonne, given the softening of global oil prices. The windfall tax, which is levied as a special additional excise duty on crude oil, was previously set at Rs 6,400 per tonne since its last revision on April 19, 2023. The decision to reduce the tax was made in the public interest."

The FOMC and ECB meetings will be closely watched as both are expected to announce a 25 bps rate hike. While gold prices may ease ahead of the FOMC, any indication of a dovish stance in comments could trigger an upside in gold prices

Global investors have been confused by conflicting US data releases, which have complicated the job of the Federal Reserve. The dollar initially fell to 101 levels due to signs of stress in the banking sector and weaker business spending, but rebounded to 102 levels due to sticky inflation and slowing growth.[EasyDNNnews:PaidContentStart]

Despite the US first-quarter GDP slowing to 1.1 per cent annualized rate, the US Personal consumption expenditures price index increased to 4.2 per cent, beating expectations of 3.7 per cent. Additionally, jobless claims totaled 230,000, hinting at a tight labor market. However, inflation remains stubborn and is unlikely to deter the Fed from raising rates in the May meeting, which is already priced in at 85 per cent according to the CME Fedwatch tool.

COMEX Gold surged to USD 2020.2 per troy ounce on safe-haven buying, triggered by concerns regarding the banking sector after First Republic Bank reported a larger-thanexpected decline in deposits in the first quarter. However, the dollar's recovery in the later part of the week led to a pullback in gold prices below USD 2000 per troy ounce.

The macro environment is becoming more challenging, with rising odds of a recession in the US and slowdown concerns in Asia leading to sharp declines in risky assets, including crude oil and base metals. While WTI crude oil near USD 75 a barrel is set for a sixth consecutive monthly decline, Copper and aluminum hover near four-month lows, and Zinc struggles to hold above two-year low levels of USD 2600 per tonne.

In terms of specific commodity predictions, WTI crude oil may experience a relief rally after a sharp fall in the past fortnight. Support is expected near USD 72.60 a barrel, with resistance near USD 77 a barrel potentially attracting selling. MCX Copper has formed a piercing line bullish candlestick pattern on the daily chart, which will be confirmed on a close above Rs 746 per kg (May futures contract), indicating the possibility of a bounce back in copper prices.

The latest Chinese economic data indicates an uneven recovery, with industrial profits slipping 21.4 per cent in the first quarter, mainly due to a lack of improvement in factory production to offset the continued decline in prices.

The focus now will be on the FOMC and ECB, both expected to announce a 25 bps rate hike. We anticipate that gold prices may experience a slight decline before the FOMC meeting, as the Fed may reaffirm its commitment to higher rates for a longer period and no rate cuts in 2023. However, any dovish comments could serve as a catalyst for an increase in gold prices.

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