Commodity Roundup: Gold up, Aluminium gains on EU sanction threats (Commodity:CO1:COM)

Gold prices inched higher on Wednesday buoyed by a pullback in the U.S. dollar index (DXY) and benchmark 10-year bond yield (US10Y), as investors tried to gauge the likely path of Federal Reserve interest rates. Additionally, persistent worries about the situation in the Middle East lent some support to the safe-haven metal.

This week however, the spotlight will switch to the U.S. personal consumption expenditure index data, the Federal Reserve’s preferred inflation gauge, as well as the S&P PMI readings, to assess the outlook for interest rates. Markets are now pricing in a 47% chance of a rate cut in March from the Fed, according to the CME FedWatch tool, compared to the 88% chance of a rate cut priced in a month earlier.

Meanwhile, in the energy complex, oil prices rose as traders weighed the impact on prices stemming from geopolitical tensions and demand worries.

“Without current geopolitical tensions, we believe crude would sell off meaningfully. Over time, we expect supply risk premiums to decouple from conflict risk, analogous to Russia-Ukraine,” Reuters reported, quoting Vikas Dwivedi, global energy strategist at Macquarie. “Barring escalation in the Middle East, we expect crude price to stay in the current range for 1Q24. We do not anticipate supply loss.”

Elsewhere in the base metals space, Aluminium prices touched their highest levels in more than a week as traders gauged risks of global supply shortage following reports of potential EU sanctions on Russia, one of the world’s top producers. Previous sanction rounds left ~85% of Russian exports of the metal to the EU untouched, according to the trade organization European Aluminium, which represents EU producers and is in favor of more import restrictions against Russian suppliers.

Supply-side issues were back in focus amid a dearth of economic data, ANZ said. “Geopolitical tensions remained supportive in the energy sector, while price-induced closures continued in metals.”

Among agriculture commodities, soybeans, cocoa and wheat futures traded higher.

Cocoa futures trading in New York surged to fresh record highs yesterday on the back of a worsening supply outlook from the top producers – Ivory Coast and Ghana, ING reported. Recent reports suggest that weather conditions and the insufficiency of fertilisers in these countries have resulted in lower output levels. “In its latest weekly report, the European Commission revealed that the EU’s soft wheat exports for the ongoing season stood at 17.4mt as of 19 January, down by 7.6% compared to 18.8mt reported in a similar period a year ago.”