Commodity Market Report: Hot CPI hammers metals; gold slips below $4,050 by Emkay Global Financial Services
Precious Metals
Precious metals experienced a broad-based bearish session, with COMEX gold (Dec-26) retreating 2.00% to close at $4,030.2/oz, alongside COMEX silver dropping 2.80% to $51.225/oz, mirroring similar downside pressure across domestic exchanges where MCX gold settled down 1.80% at Rs1,40,525/10gm and MCX silver fell 2.40% to Rs1,82,576/kg.
Metals remained under pressure after higher-than-anticipated October US CPI data and hawkish Federal Reserve commentary solidified bets for a December rate increase. The inflation beat drove a sharp rally in Treasury yields and the US dollar on Tuesday, with traders now fully pricing in a quarter-point Fed rate hike. The combination of rising borrowing costs and a stronger greenback continue to weigh heavily on gold, increasing the holding cost of the non-interest-bearing asset while dampening demand among international buyers.
The short-term outlook for bullion remains decidedly bearish, as elevated Treasury yields and a strong US dollar present persistent headwinds following hot inflation data and hawkish Fed signals.
Base Metals
Base metals witnessed renewed selling pressure on Tuesday, following two consecutive days of gains, with losses broadening across the complex. On the LME, copper closed at $13,679/MT and aluminium at $3,010/MT, both down over 1.5%, while lead and zinc settled around 0.5% lower. On the MCX, aluminium declined over 1.6% to Rs325/kg, while copper ended 1% lower at Rs1,337/kg.
The sell-off coincided with a sharp intraday strengthening of the US dollar, which moved above 102.20 following the release of October US CPI data. Headline CPI rose 0.4% mom against expectations of 0.3%, while core CPI increased 0.3% against the consensus of 0.2%. The stronger-than-expected readings reinforced concerns over persistent inflationary pressures, lending support to the dollar. Brent crude also settled below $90/bbl.
Despite the correction, aluminium backwardation remains elevated above $100/MT on the LME, while MCX backwardation continues to hold around Rs1.50/kg.
For the day: We expect some consolidation across the base metals complex following Tuesday's sharp correction. Price action around immediate support levels, alongside stability in the US dollar, will be important in determining whether the recent weakness extends or markets attempt a recovery.
Energy Complex
Crude oil prices stabilized around $86 per barrel following a two-day, nearly 5% sell-off, with market participants weighing de-escalation signals against ongoing geopolitical friction. While US President Donald Trump suggested that additional strikes on Iran were unnecessary, continued regional skirmishes and a lack of diplomatic breakthroughs kept geopolitical risk premiums intact.
Adding to regional delivery uncertainties, a tanker carrying Russian diesel turned away off the coast of New York shortly after signaling a US port of call.
On the supply front, the American Petroleum Institute reported a massive 9mn-barrel build in US crude inventories last week. Distillate stocks, including diesel, rose by 1.5mn barrels, offering slight relief after recently dropping below the 100mn-barrel threshold for the first time since 2003. Official government figures from the EIA are expected Thursday.
The short-term outlook for crude oil remains cautious-to-bearish, as heavy API inventory builds and technical moving average breakdowns counter near-term geopolitical supply concerns in the Middle East.
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