Gold and Oil Prices Volatile Amid Geopolitical Tensions and Economic Uncertainty

Recent data releases from the U.S. have reinforced expectations for potential Federal Reserve rate cuts, lifting market sentiment in the past fortnight. 

The U.S. dollar climbed past the USD 103 mark, driven by ongoing inflationary pressures and rising unemployment, which continue to complicate the Fed's policy decisions. The Consumer Price Index (CPI) increased by 0.2 per cent month-over-month and 2.4 per cent year-over-year, surpassing forecasts of 0.1 per cent and 2.3 per cent, respectively. Meanwhile, jobless claims surged by 33,000 to 258,000, reaching their highest level since early August 2023. 

On the other hand, a softer-than-expected Producer Price Index (PPI) hinted that inflation might be easing, further strengthening the case for moderate rate cuts. The CME FedWatch Tool now shows almost a 90 per cent likelihood of a 25-basis-point cut in November, which has limited the dollar’s upward momentum while U.S. equities rallied to new record highs. 

The hotter-than-anticipated CPI, coupled with signs of a weakening labour market, created challenges for the Federal Reserve but gave gold prices a boost. Gold, which had dipped to a weekly low of USD 2,618.80 per ounce, rebounded sharply to $2,679 per ounce following the lower-than-expected PPI reading. Silver experienced a limited decline of 2 per cent, supported by the overall uptick in gold and other metal prices. 

LME base metals closed lower in the last fortnight after a briefing from China's top economic planner, which concluded without any new commitments to increased government spending. Despite China’s confidence in hitting its growth targets, further declines in metals may occur as China's finance minister hinted at additional fiscal stimulus, though details on the scale and timing remain unclear. 

The volatility in oil prices is expected to continue, especially with reports of potential Israeli retaliatory strikes. Additionally, the closure of several product terminals and disruptions in pipeline operations due to a hurricane are likely to impact supply chains in the coming week. 

Oil prices on the WTI benchmark fluctuated amid ongoing concerns about escalating tensions between Israel and Iran, as well as increased U.S. stockpiles and the lack of new stimulus measures from China. The volatility in oil prices is expected to continue, especially with reports of potential Israeli retaliatory strikes. Additionally, the closure of several product terminals and disruptions in pipeline operations due to a hurricane are likely to impact supply chains in the coming week. 

After an 11 per cent surge in MCX Crude Oil (November Futures) in the past fortnight, volatility was the theme last week, as evidenced by a High Wave candle formation. Price dips may find support near `6,000 per barrel, with a deeper level at ₹5,600. The next target is projected at ₹6,600, with an eventual move towards ₹7,000. The daily Average Directional Index (ADX) near 19 suggests that a break above 20 could indicate strengthening momentum. The outlook for the week remains Sideways to Bullish, with an anticipated price range of ₹6,000 to ₹6,600. 

Looking ahead, U.S. retail sales data will be a key market focus, as moderating inflation sets the stage for potential quarterpoint rate cuts in upcoming meetings. Meanwhile, critical economic data from China will shed light on September’s performance, and any signs of a sluggish economy could challenge China’s ability to meet its 5 per cent GDP growth target. The European Central Bank’s monetary policy decision is also in focus, with markets widely anticipating a 25-basispoint rate cut to stimulate growth.