What to Watch as Commodities Traders Prepare for Powell

Jerome Powell takes center stage for commodities this week, with the Federal Reserve chief set to unleash another large rate hike that could pile more pressure on energy, metals and crops.

Markets opened in jittery form on Monday ahead of the Fed’s big mid-week reveal: crude added to three weeks of declines, gold is again testing a two-year low, and metals are sliding. The fear is that stronger anti-inflation medicine from the US and other central banks will not just squeeze demand or even trigger recessions but add to a dollar surge that’s battering commodities.

“A chunky rate hike is now largely priced into markets, but we think it could still keep a lid on prices” during this week, analysts at Capital Economics wrote in a note.

There’s a lot to watch elsewhere too. Europe’s leaders are hatching plans to fight the energy crisis, with Germany mulling nationalizations. The US will offer the latest insight on meat demand, and there’s a clutch of key conferences: on copper in Barcelona, gold in Denver and climate in New York and Pittsburgh. With geopolitical tensions running high, the UN’s General Assembly might also be a focus.

Gold Versus Fed

Pre-Fed tensions are most obvious in the bullion market. The looming rate decision -- together with the bank’s language around inflation and future hikes -- will drive the next moves for the precious metal after a month of steady declines in the face of a supercharged greenback. The Fed is expected to raise rates by at least 75 basis points, and a bigger increase could unleash even more volatility across currency markets.

Funds are already fleeing gold and prices dipped last Friday to their lowest since 2020. Hedge funds and money managers have turned net bearish on the precious metal. Some traders reckon there’s worse to come for gold until Fed language on inflation moderates, although others point to residual support for prices from heightened geopolitical and economic risks. The commitment of bullion’s remaining longs is set to be tested.