On the Federal Reserve, while July hike odds have risen to around one-in-three, a single month of conflict-driven oil price escalation, against a backdrop of broadly constructive June data, is unlikely to be enough for the Fed to act next week.
Commodities outlook for next week
- Markets to enter critical week with geopolitical and monetary policy risk converging simultaneously
- Iran's dismissal of negotiations signals that a diplomatic off-ramp remains distant
- Single month of oil price escalation unlikely to be enough for Fed to act next week
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A week (ended July 24) that began with tentative diplomatic signals ended with the conflict spreading to a second global shipping corridor, a sharp rise in July Fed rate-hike odds, and an extended crude price rally, leaving commodity markets to navigate one of their most complex risk environments in months.
The dollar held firm above 101 through most of the week, pushed higher by a sharp jump in Fed rate hike expectations as oil's renewed surge reignited inflation concerns. CME FedWatch data showed July hike odds rising to 34 percent from 12 percent just a week ago, while September hike odds held above 80 percent. US jobless claims fell to 1,87,000 from a revised 2,09,000, though the improvement reflected falling labour force participation rather than genuine hiring momentum, leaving the Fed's July 28-29 meeting as the most consequential in months.
The greenback closed the week 0.7 percent higher at 101.46, with Friday's crude pullback and renewed US-Iran negotiation talk limiting further upside. US equities closed mixed, with the Nasdaq and S&P 500 posting modest weekly declines while the Dow Jones edged 0.7 percent higher, amid fresh tariff concerns, sharp conflict escalation, and growing worries about the broader economic outlook.
Spot gold posted only its seventh weekly gain in 21 weeks since the Iran war began, closing above $4,050 per ounce, up just over 1 percent for the week, while silver added roughly 4 percent to close near $58 per ounce. The recovery was driven by dip buying and short covering after technical supports held, rather than a genuine shift in the macro backdrop. Prices had slipped below $4,000 and $56 earlier in the week as sticky energy-driven inflation kept Fed rate hike expectations elevated. A midweek rebound was subsequently reversed by a firmer dollar and climbing Treasury yields, with both the 2-year and 10-year touching their highest levels since January 2025. Friday's recovery owed more to a crude pullback than any change in the rate outlook, leaving gold's trajectory firmly data and geopolitical dependent.
Base metals firmed alongside precious metals. Copper hit a one-month high on declining China inventories and refined metal tariff uncertainty, while aluminium, zinc, and lead posted marginal gains.
MCX Gold futures closed marginally positive at Rs 1,43,106 per 10 gram, gaining just 0.20 percent, with price consolidating in a narrow range below the Supertrend resistance, reflecting a lack of directional conviction. The RSI at 47 hovers near the midpoint, confirming a sideways bias with no clear momentum in either direction. On the upside, immediate resistance is at Rs 1,46,000, followed by a stronger hurdle at Rs 1,48,000. On the downside, first support is at Rs 1,41,000, while Rs 1,39,800 remains the critical base, a break below which could shift the bias towards bearish.
Crude finished the week up about 10 percent, with WTI near $90.5 and Brent around $97 after briefly touching $102, its strongest since late May. The decisive development occurred Thursday when Houthi forces claimed drone and missile strikes on two Saudi-flagged tankers in the Red Sea. Saudi authorities confirmed one tanker, the Encelia, was set ablaze. Independent monitors reported at least seven vessels diverted away from the Bab el-Mandeb Strait, marking the first visible spread of the conflict beyond the Strait of Hormuz to the alternate southern corridor that Saudi Arabia has used via Yanbu exports.
Separately, Kazakhstan compounded the supply picture, losing roughly 80 percent of its Caspian Pipeline Consortium export capacity following drone strikes on the terminal. Iran rejected a ceasefire proposal delivered through Iraqi mediation, while Trump warned of "major military punishment" should Red Sea attacks continue. Prices pulled back nearly 4 percent on Friday on reports of potential US-Iran negotiations resuming.
Markets enter a critical week with geopolitical and monetary policy risk converging simultaneously. Saturday's fresh Houthi strikes on Saudi Red Sea installations and a tanker incident in the Gulf of Oman underscore that the Bab el-Mandeb front is not a one-off event. For crude, the critical question is whether vessel diversions harden into a sustained traffic reduction, which would compound the Hormuz disruption and tighten global supply at a time when Kazakhstan's pipeline capacity is also severely constrained.
Iran's dismissal of negotiations signals that a diplomatic off-ramp remains distant. This will keep the geopolitical risk premium elevated, which will continue to cap the upside for gold and silver through its effect on inflation and rate expectations. On the Federal Reserve, while July hike odds have risen to around one-in-three, a single month of conflict-driven oil price escalation, against a backdrop of broadly constructive June data, is unlikely to be enough for the Fed to act next week. September remains the more credible risk. For now, Fed communication, the trajectory of Red Sea shipping, and any diplomatic signal from Tehran are the three variables that will set the tone for commodity markets in the week ahead.
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