Evening Track : Gold dips as dollar strength outweighs geopolitical tensions, FOMC meeting in focus by Kotak Securities Ltd
Comex Gold futures are holding below $3,400 per ounce, as dollar strengthen with market attention focused on escalating Middle East tensions as Trump's call for Iran's unconditional surrender and discussions of potential strikes against Khamenei have heightened fears of direct US involvement in the conflict, which could significantly affect gold prices. While recent tepid US retail sales, housing, and industrial output data generally support Fed rate cuts this year, a broader Middle East conflict would likely be inflationary, potentially reducing the likelihood of monetary easing. The Fed maintaining stable interest rates to guide inflation towards its 2% target, while also striving for maximum employment. Lower rates could stimulate the economy and employment, but risk reigniting inflation.
WTI crude oil is trading near $73 a barrel, down 0.5% today as market participants monitor shipping flows through the Strait of Hormuz. Despite concerns over potential disruptions to the quarter of global crude shipments passing through the strait, and to Iranian supplies, early data from TankerTrackers.com Inc. indicates a significant increase in Iranian exports since recent attacks began, with no major interruption to Hormuz traffic. Geopolitical tensions are escalating, with Trump demanding Iran's "UNCONDITIONAL SURRENDER" and warning of potential strikes. The U.S. is deploying additional military assets, including the USS Nimitz carrier group, to the region. Additionally, Middle East to China crude shipping costs have risen over 50%.
LME base metals are trading mixed, with copper holding firm at $9691/ton, while aluminium and zinc edge lower. Despite the dip, aluminium briefly touched its highest level since Q2 began, supported by concerns over bauxite supply disruptions in Guinea and optimism around resilient manufacturing demand. Copper continues to gain ground amid a sharp drop in LME inventories, down nearly 60% YTD, fueling fears of a near-term supply squeeze. The widening spread between copper’s spot and 3-month contracts reflects this tightness. Aluminium, too, is facing a potential short squeeze, with inventories down 45% this year.
European natural gas prices have risen for a sixth consecutive day exceeding €40 per megawatt-hour for the first time since early April driven by heightened concerns over shipping through the Strait of Hormuz due to the Israel-Iran conflict. Market anxieties stem from potential disruptions to tanker traffic in the Strait, a critical energy conduit. Qatar has advised LNG vessels to await loading outside the strait amidst the escalating tensions, as approximately 20% of global LNG trade traverses this chokepoint.
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