Commodity Insights

Bullion Softens After Inflation-Led Rally; Crude Holds Firm Amid Geopolitical Crosscurrents

Global commodities traded with a cautious undertone as investors reassessed inflation trends, geopolitical developments and supply dynamics across energy and metals. While bullion witnessed mild profit-booking after a strong rally, crude oil remained range-bound ahead of crucial US-Iran negotiations. Base metals and natural gas reflected softer near-term demand signals amid thin global liquidity conditions.

BULLION – Consolidation After Rate-Cut Optimism
Gold briefly slipped toward the $4,990 mark before stabilising above $5,000 as dip-buyers returned following last session’s sharp rally. The recent upside was largely driven by softer US inflation data, which reinforced expectations of monetary easing by the Federal Reserve. Markets are currently factoring in more than two rate cuts this year, keeping the broader bullish narrative intact.

However, near-term direction will depend on upcoming macro triggers including FOMC minutes, US GDP estimates and PCE inflation readings. Liquidity remains subdued due to holiday closures in major Asian markets, limiting aggressive positioning. Structurally, gold continues to benefit from geopolitical uncertainty, steady central-bank buying and portfolio rotation away from traditional fixed-income assets. While stronger growth data or sticky inflation could trigger consolidation, the medium-term outlook still favours higher price zones.

Sectoral Impact – Bullion
• Gold finance & jewellery stocks may see intermittent volatility as price swings influence consumer demand trends.
• Mining and commodity ETFs could remain supported if rate-cut expectations strengthen further.
• Currency-sensitive sectors may experience indirect effects due to gold’s inverse relationship with real yields.

ENERGY – Crude Oil Supported by Geopolitics but Supply Risks Rising
WTI crude hovered near $62.50 after registering its first weekly decline of the year. The market remains highly headline-driven as tensions surrounding Iran and ongoing diplomatic developments keep risk premiums elevated. Comments favouring regime change and uncertainty around Middle East supply flows have provided a floor to prices despite broader concerns around demand growth.

Oil has gained roughly 10% year-to-date, but upside momentum is moderating as the International Energy Agency trimmed demand growth forecasts and OPEC+ hinted at potential output increases from April. Additional uncertainty stems from Black Sea disruptions and evolving US-Ukraine negotiations. Unless geopolitical risks escalate materially, rising global supply could cap rallies and keep Brent vulnerable to a gradual drift toward lower levels during the first half of the year.

Sectoral Impact – Energy
• Oil marketing companies may benefit if crude stabilises at moderate levels, supporting refining margins.
• Upstream energy producers could face volatility depending on geopolitical developments.
• Aviation and logistics sectors may see cost stability if crude remains range-bound.

BASE METALS – Liquidity-Driven Weakness Amid Inventory Build-Up
Base metals started the week on a softer note as multiple Asian markets remained shut, resulting in thin trading volumes. Zinc led declines, while copper consolidated near recent highs amid rising exchange inventories, signalling subdued near-term industrial demand. Aluminium traded flat after reports suggested a narrower scope of US import tariffs, easing supply fears.

The LMEX index, which had surged earlier on strong Chinese buying and a weaker dollar, has cooled as traders await clarity on global trade policies and the Federal Reserve’s stance. Despite short-term softness, underlying fundamentals remain stable, supported by long-term infrastructure spending and electrification themes.

Sectoral Impact – Base Metals
• Metal producers and mining companies may witness consolidation until demand visibility improves.
• Capital goods and infrastructure stocks remain structurally supported due to stable long-term metal demand.
• Export-oriented manufacturing sectors may benefit if input costs soften.

NATURAL GAS – Weather-Driven Decline Despite Tight Fundamentals
US natural gas futures corrected sharply, falling below $3 per MMBtu as warmer-than-expected weather forecasts reduced heating demand expectations. The drop reversed last month’s rally driven by severe winter storms. Thin holiday liquidity further amplified the downside move.

Despite the correction, fundamentals remain constructive. Gas inventories are still below the five-year average, and LNG exports continue near record highs, providing structural demand support. Price direction in the near term will largely depend on weather revisions and weekly storage data, with colder forecasts likely to trigger swift rebounds.

Sectoral Impact – Natural Gas
• Fertiliser and power generation companies may benefit from lower gas prices through reduced input costs.
• LNG exporters remain supported by strong global demand dynamics.
• Utility sectors could see margin stability if gas prices stay contained.

Chanakya View – Macro Positioning
The broader commodity landscape suggests a transition from inflation-driven momentum to a more data-dependent phase. Bullion remains structurally bullish but may consolidate around key macro events. Crude oil is increasingly balancing geopolitical risks with supply expansion signals, while base metals and natural gas reflect cyclical demand dynamics rather than structural weakness. For equity markets, this environment favours selective positioning — energy and metals may trade range-bound, while consumption and rate-sensitive sectors could gain if global easing expectations continue to build.