Commodity wrap: gold above $5,000 as Fed decision in focus; oil surges

Gold prices were steady after spending most of the day in the red on Tuesday as market participants awaited the outcome of the US Federal Reserve’s policy meeting.

Silver climbed nearly 1% at the time of writing as prices continued to consolidate above the $80 per ounce level. 

Meanwhile, oil prices were also 2% higher, recovering from sharp losses in the previous session as the Middle East conflict intensified. 

Base metals show mixed performance, following a call from US President Donald Trump for the Fed to urgently cut interest rates.

Additionally, Trump predicted a sharp decline in oil prices once the conflict in Iran concludes.

At the time of writing, the three-month aluminium contract was at $3,403 per ton, up 0.4%, while the copper contract was down 0.5% at $12,795.13 per ton. 

Gold steady 

On Tuesday, gold prices remained stable. Market participants were focused on the escalating conflict in Iran and the anticipated policy decision from the US Federal Reserve.

The gold price is struggling to fulfil its role as a safe haven in times of crisis.

It is currently trading at just over $5,000 per ounce. 

The price of gold has dropped by approximately 5% since the war in Iran began two and a half weeks ago.

This decline has been exacerbated by the significant strengthening of the US dollar, which has also occurred since the war's commencement.

The ongoing US-Israeli war against Iran, now entering its third week, is the root cause of current inflation due to the significant disruption it has caused in the energy trade.

The US central bank is anticipated to announce its decision to keep interest rates unchanged on Wednesday.

Market expectations for Federal Reserve rate cuts have significantly shifted since the start of the war. 

As of the end of last week, Fed Funds futures no longer indicate even a modest 25-basis-point rate reduction by the close of the year.

This represents the market pricing out nearly 50 basis points of previously anticipated rate cuts.

“This is primarily due to the sharp rise in oil prices and the resulting inflationary risks,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report. 

The COMEX gold contract was last at $5,013.25 per ounce, largely steady from the previous close.

Silver prices were also largely unchanged at $80.645 an ounce after spending most of the day in the green. 

Oil climbs on Iran’s latest attacks

Oil prices climbed more than 1% on Tuesday, partially offsetting losses from the prior session.

This increase was driven by renewed supply concerns stemming from Iranian attacks on the UAE and the continued, significant closure of the Strait of Hormuz.

At the time of writing, the West Texas Intermediate crude oil was at $94.05 a barrel, up 1.7%, while Brent was at $101.60 per barrel, up 1.4%.

At one point during the day, prices were up over 4%.

In the previous session, Brent lost 2.8% while US WTI fell by 5.3% after some vessels sailed through the critical Strait of ​Hormuz waterway.

The ongoing US-Israeli conflict with Iran has entered its third week without resolution, as Iran escalates its attacks against the United Arab Emirates (UAE).

A third attack in four days caused a fire at the UAE's Fujairah export terminal on Tuesday, leading to at least a partial halt in oil loading.

Additionally, operations at the Shah gas field remain suspended following a previous assault.

Fujairah is strategically vital, situated on the Gulf of Oman just outside the Strait of Hormuz. It is a crucial chokepoint for oil exports equivalent to about 1% of global demand.

This disruption to shipping through the Strait of Hormuz, a critical passageway for approximately 20% of the world's oil and liquefied natural gas (LNG) trade, has triggered anxieties regarding potential supply shortages, elevated energy costs, and rising inflation.

Despite the potential utilisation of alternative transport routes, and including the continuing Iranian oil exports, the global oil supply would still face a significant daily shortfall of 13.5 million barrels, according to Commerzbank.

Donald Trump, the US president, criticized several Western allies on Monday for their "ingratitude" after they rejected his request to deploy warships to escort commercial shipping through the strait, despite having received decades of support from the US.

White House economic adviser Kevin Hassett informed CNBC on Tuesday that oil tankers are "starting to dribble through" the Strait of Hormuz. 

He reiterated the Trump administration's stance that the conflict with Iran is expected to last weeks, not months.