Powell's more restrictive monetary stance exerts widespread pressure on commodity markets

The Federal Reserve’s tightening strategy triggered a massive repositioning by investors on Monday, severely impacting the prices of gold, silver, crude oil, and industrial metals. According to CBA commodities analyst Vivek Dhar, reported by Jin10, investors are increasingly interpreting that Jerome Powell will maintain a restrictive monetary policy stance for an extended period, leading to a coordinated move to exit relatively lower-risk assets.

Defensive Realignment in Commodity Markets

The sell-off affected both precious metals and U.S. equities simultaneously, revealing a common defensive strategy among global investors. “The decision to sell precious metals along with U.S. stocks indicates that the market perceives a more restrictive stance from Powell,” Dhar noted. This coordinated behavior reflects how market participants adjust their expectations regarding the duration and intensity of the monetary tightening cycle.

Dollar Strengthening Intensifies Pressure on Commodities

The appreciation of the U.S. dollar has significantly amplified pressure on the prices of base metals and crude oil. Dhar explained that the combination of a more restrictive monetary policy and a stronger currency creates a particularly challenging environment for commodity prices denominated in dollars. Asian stock markets followed the downward trend of U.S. futures, boosting risk aversion sentiment amid corporate earnings reports, central bank meetings, and critical macroeconomic releases.

Fundamental Change or Technical Adjustment?

Despite the magnitude of the volatility, the CBA analyst warned against alarmist interpretations. “The key question is whether this marks the beginning of a structural contraction in commodity prices or simply a technical correction,” Dhar stated. His assessment distinguishes between short-term dynamics and fundamental transformations in the markets. For Dhar, the current movement is a natural adjustment that could present a buying opportunity rather than a sign of deterioration in the underlying market fundamentals.

Bullish Outlook Maintained: $6,000 Target in Q4

Despite the recent adverse movement in precious metals, Dhar maintains his long-term outlook for gold. The analyst reiterates his bullish position on the precious metal, forecasting that gold prices will reach $6,000 during the fourth quarter. This projection remains valid even after the recent turbulence affecting global commodities, reflecting confidence in the subsequent recovery of these assets based on economic fundamentals and historical cycles.