Commodities wrap: Fed rate cuts, geopolitical tensions drive commodity prices

Gold and crude oil prices extended gains on Wednesday, with copper prices remaining largely unchanged from the previous close. 

Silver prices jumped by more than 1% on Wednesday as the metal flirted with the $42 per ounce level. 

Oil prices rose as geopolitical tensions simmered, raising fears about disruptions.

Gold hovers near record highs

Gold prices remained near an all-time high on Wednesday, supported by anticipated US interest rate cuts later this month. 

Market participants are now awaiting US inflation data, which is expected to provide further insight into the Federal Reserve's future monetary policy decisions.

Last week's US nonfarm payroll data indicated a weakening labour market, solidifying the case for a Federal Reserve rate cut at its September policy meeting.

Additionally, the government reported on Tuesday that the US economy likely created 911,000 fewer jobs in the 12 months leading up to March than initially estimated. 

This suggests that job growth was already decelerating before the implementation of President Donald Trump's aggressive import tariffs.

According to CME Group's FedWatch Tool, markets are anticipating a 25-basis-point rate cut with a 92% probability.

The chances of a more substantial 50-basis-point cut are considerably lower, at approximately 8%.

“In the meantime, bets for a more aggressive policy easing by the Federal Reserve (Fed), bolstered by last Friday's weak US Nonfarm Payrolls (NFP) report, keep a lid on the overnight USD recovery and help revive demand for the non-yielding Gold,” Haresh Menghani, editor at FXstreet, said in a report. 

Persistent trade uncertainties, escalating geopolitical tensions, and political jitters in France and Japan are additional factors bolstering the appeal of this safe-haven precious metal.

Oil extends gains

Oil prices also continued to rise this week, boosted by Israel's attack on Hamas leadership in Qatar, Poland's downing of drones, and a US push for new sanctions on Russian oil buyers.

However, oversupply concerns limited gains for the black liquid on Wednesday. 

At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $63.09 a barrel, up 0.7% from the previous close. 

Brent crude oil on the Intercontinental Exchange was at $66.88 a barrel, also up 0.7%. 

Prices had settled up 0.6% in the previous trading session after Israel announced an attack on Hamas leadership in Doha. 

While both benchmarks initially rose nearly 2% following the attack, they subsequently retraced much of those gains.

Separately, geopolitical tensions escalated when Poland shot down drones during a widespread Russian attack in western Ukraine on Wednesday. 

This incident marked the first time a NATO member fired shots in the conflict, though there was no immediate threat of a supply disruption.

Media reports indicate that US President Donald Trump has encouraged the European Union to implement 100% tariffs on China and India.

This measure is intended as a tactic to exert pressure on Russian President Vladimir Putin.

Since its 2022 invasion of Ukraine, Russia's finances have been bolstered by significant oil purchases from major buyers like China and India.

The supply outlook remains bearish. The US Energy Information Administration (EIA) has warned that global crude prices will face significant pressure in the coming months due to increasing inventories as OPEC+ raises output.

Precious metals surge

Silver prices surged by 1.2% on Wednesday to trade at $41.851 per ounce. 

The gold/silver ratio remained largely stable, at 88.66 on Wednesday, a negligible change from 88.67 recorded on Tuesday. 

This ratio indicates how many ounces of silver are required to match the value of one ounce of gold.

On Wednesday, during Asian trading hours, the price of silver saw increased buyer interest.

Amidst a weakening US dollar and rising Middle East tensions, the value of white metal is increasing.

Investors will closely monitor the US Producer Price Index (PPI) inflation data for August, set to be released later today, Wednesday, for further market direction.

Elsewhere, platinum saw a 2% increase, reaching $1,402.10, while palladium jumped by 5% to $1,200.