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Commodities Fall Across the Board, Metals Exposed to the Risk of Selling


The dollar index jumped to a two-month high on Thursday, a day after the Federal Reserve unexpectedly hinted that it would raise interest rates earlier than expected and end its emergency bond-buying program, while the euro hit its lowest level since April and sterling hit a six-week low. Gold futures suffered their biggest one-day percentage fall in a year as the Fed shifted its monetary policy stance to hawks, boosting the dollar and bringing gold futures prices to their lowest level in nearly seven weeks. Us oil fell more than 3 per cent at one point, hitting a new low of $69.77 a barrel this week, as concerns about oil demand resurfaced after a surge in the number of new cases in the UK, while supply concerns about the return of Iranian oil also weighed on the market.

In terms of commodity closing, COMEX August gold futures closed down nearly 4.7% at $1774.80 an ounce, the lowest since April 30. WTI July crude oil futures closed down 1.11 U.S. dollars, or 1.54 percent, at 71.04 US dollars per barrel, while Brent August crude oil futures closed down 1.31 US dollars, or 1.76 per cent, at 73.08 US dollars per barrel.

Spot gold rose slightly in Asia on Friday, trading around 1778. Gold prices tumbled more than 2% on Thursday, as the dollar continued to strengthen after the Fed announced its hawkish monetary strategy. In addition, the Fed's record use of reverse repo also suggests that the Fed may be about to announce a reduction in bond purchases. However, the sharp fall in US bond yields and the renewed increase in the number of first-time petitioners have limited the fall in gold prices.

Naeem Aslam, chief market analyst at AvaTrade, said that the Fed revised its expected timetable for raising interest rates, which basically brought huge resistance to gold prices. For investors, the opportunity cost of holding gold that does not benefit from interest rates is getting higher and higher. For them, gold has become less and less attractive to invest. 

Crude oil prices fell the most in a month as the rising dollar prompted financial investors who had previously bought commodities to hedge against inflation to flee the assets. New York crude oil futures fell 1.5% on Thursday, a day after the Fed hinted that its ultra-loose monetary policy was coming to an end, a stronger dollar made dollar-denominated commodities less attractive. The Bloomberg dollar spot index rose for the fifth day in a row, the longest since March 2020.

John Kilduff, a partner at Again Capital LLC, said all commodity-related assets fell sharply, a sell-off that had been brewing for weeks, and while crude oil prices were weak, there were still signs of strength in the oil market as the epidemic receded. Citigroup said Brent could soon exceed $80 and that the release of pent-up leisure demand from vaccination would support global consumption. 

There is no doubt that inflation determines to some extent the timing of the Fed's interest rate hike in the future. Whether inflation is a temporary phenomenon or whether it will last longer has become the focus of the market. On the market side, the market seems more willing to trust the Fed's judgment on inflation, or even if inflation unexpectedly soars, the market expects the Fed to accelerate the pace of policy tightening to limit the rise in inflation. As a result, commodities appear to have suffered a systemic sell-off in the market overnight, with Ole Hansen, head of commodities strategy at Saxo Bank, saying that precious metals are expected to face the risk of another sell-off before the data may prove the Fed wrong.

Risk Warning: The above content is for reference only, and does not represent JRFX’s position. JRFX does not assume any form of loss caused by any trading carried out in accordance with this article. Please consult your financial planner for your investment portfolios and manage your own risk.

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