Commodities Face Critical Week Ahead Amid Multiple Market Influencers

Market Volatility Persists Amid Ongoing Gulf Crisis

A week marked by sharp diplomatic reversals, military exchanges in the Strait of Hormuz, and a jobs report that defied expectations left markets volatile but resilient amid the ongoing Gulf crisis. The dollar index posted a second consecutive weekly decline, touching pre-war levels of 97.6 as US President Trump signalled "great progress" in US-Iran talks and US officials confirmed the fragile ceasefire remains intact, reducing the safe-haven bid.

The dollar subsequently recovered above 98 after fresh exchanges of fire between US and Iranian forces in the Strait of Hormuz cast doubt over ceasefire stability. In a surprise move, April non-farm payrolls came in at 1,15,000, well above the 65,000 forecast, with unemployment holding steady at 4.3 percent, driven by gains in healthcare, transportation, and retail, while federal government payrolls declined.

Consumer sentiment deteriorated to a fresh record low of 48.2 in May, with year-ahead inflation expectations rising to 4.5 percent, underscoring the growing pressure on household budgets from elevated energy costs. Despite the uncertainty, Wall Street shrugged off the geopolitical noise, with the S&P 500 and Nasdaq closing at record highs for a sixth consecutive weekly gain, their longest winning streak since 2024, buoyed by strong corporate earnings and an AI-driven semiconductor rally.

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Gold and silver prices pushed higher mid-week, buoyed by a weaker dollar, falling oil prices, and growing peace deal optimism. China's central bank extended gold purchases for an 18th consecutive month, reinforcing the structural official-sector bid. However, both metals gave back some gains, with gold closing near $4,725 per ounce and silver near $81 per ounce, as the Strait of Hormuz flare-up and fresh military exchanges kept the Fed's cautious tone intact.

On the commodities front, LME base metals ended the week mixed, with copper leading the complex higher with a strong 4.5 percent weekly gain to $13,548 per tonne, supported by ongoing sulphuric acid supply risks and a softer dollar. Aluminium slipped 0.6 percent to $3,502 per tonne despite continued support from Gulf smelter disruptions, consolidating after recent outperformance.

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Oil markets saw sharp swings throughout the week, with Brent slipping to $96 a barrel and WTI falling below $90 mid-week after reports that the White House was close to a one-page memorandum of understanding with Iran covering nuclear enrichment suspension, sanctions relief, and Hormuz reopening. Prices then reversed sharply, with Brent closing near $101 and WTI near $95, after a senior Iranian official rejected the US-backed plan, demanded reparations from Washington, and US forces struck Iranian military targets following attacks on three Navy destroyers in the strait.

The week ahead could prove just as eventful, with the US awaiting Iran's response to its latest proposal, calling for a gradual Hormuz reopening in exchange for a phased lifting of the naval blockade. Any acceptance would accelerate the unwinding of the war premium across oil and the dollar, while boosting metals and risk assets broadly. A rejection or further military escalation would quickly reverse this week's diplomatic gains.

Beyond the Iran headline, markets will be watching the planned Trump-Xi meeting in Beijing on May 14-15, which carries its own significance given China recently told its firms to ignore US sanctions on Iranian oil, adding US-China tension to the mix. On the data front, US inflation and retail sales will be the key macro releases, while Fed speakers will be closely watched given consumer sentiment at a record low and inflation expectations still elevated. With the ceasefire fragile and the MOU unsigned, markets stay on edge, ready to swing on any headline.