FOMC, tariffs & Israel-Iran clash to spike commodity volatility

By Kaynat Chainwala, AVP Commodity Research at Kotak Securities

Renewed tariff threats from US President Donald Trump unsettled markets initially, with intensifying Israel-Iran conflict further shaking investor confidence.

The US dollar fell to a three-year low of 97.6 after President Trump’s announcement that unilateral tariffs will be imposed within two weeks, raising concerns about the US economic outlook. Additionally, subdued inflation data and signs of softness in the US labour market fueled expectations of Federal Reserve rate cuts. However, the greenback pared weekly losses to 1 percent and ended above 98, supported by safe-haven flows following Israel’s attack on Iran while, US equities dropped on global risk aversion.

COMEX gold prices, which had dipped to $3,313 per troy ounce earlier in the week, rebounded sharply to $3,468 per troy ounce on Friday, gaining over 3 percent for the week ended June 13. The rally was driven by safe-haven demand amid escalating tensions in the Middle East, weaker-than-expected US economic data and a US Court of Appeals ruling that upheld Trump tariffs.

The MCX Gold Futures on the daily chart opened a gap higher on Friday and reached an all-time high of Rs 1,00,681 per 10 gram. Last week, the price held the 20 EMA support and climbed quickly, closing at an all-time high of Rs 1,00,314. Supertrend (7,3) has turned positive, indicating a bullish inclination. We expect price to continue its positive trend next week, but it may encounter early resistance at Rs 1,02,300, followed by Rs 1,03,500. On the flip side, the nearest support is at Rs 98,700, followed by Rs 97,600.

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WTI crude oil led the non-agri commodities last week, surging as much as 13 percent, boosted by a 14 percent rally on Friday that pushed prices to $77.62 per barrel, its largest single-day gain since May 2020. The spike followed Israel’s targeted strike on Tehran’s nuclear and missile facilities, heightening fears of Iranian retaliation. Markets are increasingly concerned about potential disruptions to oil shipments through the Strait of Hormuz, a strategic chokepoint responsible for nearly 20 percent of global oil flows. The geopolitical risk premium could keep oil prices elevated, especially as missile strikes continue to escalate across Tel Aviv, Jerusalem, and Tehran.

LME base metals posted a mixed performance amid volatile global cues. Aluminium led the pack, climbing over 2 percent to close at $2,503 per tonne, buoyed by tightening inventories and optimism over a preliminary US-China trade framework. In contrast, copper edged down 0.5 percent to settle around $9,645 per tonne, as Chinese smelters increased exports amid weak domestic demand. However, the decline was capped by falling LME copper inventories and increased shipments to the US in anticipation of possible tariffs.

Looking ahead, Federal Reserve is widely expected to leave interest rates unchanged at next week’s policy meeting, with attention turning to updated FOMC economic projections for clues on interest rate outlook. Meanwhile, the Bank of England is also expected to hold rates steady. Key data releases, including US retail sales and Chinese economic indicators, will be closely watched.

Trade tensions remain a key risk despite a provisional US-China trade truce reached in London. Markets await formal confirmation from Presidents Trump and Xi. Meanwhile, negotiations with the EU, India, Japan, and other partners are still ongoing. The EU has already indicated that talks may extend beyond Trump’s July 9 deadline. This, combined with the spiraling Israel-Iran conflict, contributes to volatile market conditions that may keep investors jittery and fuel a pronounced risk-off mood that could grip markets in the days ahead.

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