Fed Hawkishness and Geopolitics Shift Commodities Landscape

This week in commodities, expectations regarding the Fed's monetary policy and geopolitical developments played a significant role. The US Treasury Secretary Scott Bessent's announcement that he could not give a specific date for the 'economic exclusion' operation against Iran helped offset some of the geopolitical risks.

The personal consumption expenditures (PCE) price index rose 0.2% month-on-month in July, exceeding market expectations, and rose 3.7% on an annual basis, while the core PCE price index, which excludes food and energy prices, was 3.3%. Inflation remaining above the Fed's 2% target strengthened expectations that the bank could raise interest rates.

Kevin Warsh, speaking for the first time as Fed Chair at the Jackson Hole Economic Policy Symposium, delivered a 'hawkish' message, prioritizing inflation and exhibiting a stance close to the 'hawkish' wing in monetary policy. He stated that current financial conditions are not yet tight enough, following which the probability of the Fed raising the policy rate by 25 basis points at its September meeting increased from 35% to 60%.

Gold's three-week winning streak came to an end as investors sold off gold and other precious metals following Warsh's statements. However, palladium prices rose 5.3%. US copper tariffs uncertainty also affected base metal prices, while wheat prices rose due to shipping risks in the Black Sea.