Commodity Markets Prepare for Increased Volatility Amid Ongoing Conflict and Elevated Inflation Risks

Global Markets Reprice Amid Inflation Shock and Geopolitical Tensions

Global markets witnessed a sharp repricing this week, driven by a conflict-driven inflation shock and geopolitical tensions, particularly in the Middle East. The US Federal Reserve's expectations underwent a significant shift, with the odds of a 25-basis-point rate hike by December rising to nearly 40 percent, up from 13.6 percent a week ago.

The dollar index surged 1.5 percent to 99.3, while benchmark 10-year US Treasury yields climbed to near one-year highs following a week of punishing US inflation data. Consumer prices rose 3.8 percent in April, the highest since May 2023, while wholesale inflation accelerated at its fastest pace since 2022, driven substantially by higher energy costs stemming from Hormuz supply disruptions.

US equities reflected the tension, with all major benchmarks posting steep losses on Friday. However, the S&P 500 still recorded its seventh consecutive weekly gain, while the Dow Jones and Nasdaq ended marginally lower for the week.

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Precious Metals Under Pressure

Precious metals bore the brunt of the macro repricing. COMEX gold slipped below $4,520 per ounce, closing roughly 4 percent lower on the week and sitting around 8 percent below its recent high of $4,783. Silver fared worse, tumbling to near $76 per ounce, about 15 percent below its recent $89.30 peak. India's decision to raise gold and silver import tariffs from 6 percent to 15 percent added another demand headwind, threatening to weaken one of the market's most reliable sources of physical buying at a particularly vulnerable moment.

Base Metals Pull Back

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Base metals pulled back sharply after hitting multi-year highs, though the weakness was uneven across the complex. Copper slipped below $13,600 per tonne on the LME, retreating from near-record highs around $14,196 per tonne as elevated prices discouraged Chinese buying and rising SHFE inventories signalled easing near-term tightness. Zinc climbed to $3,589 per tonne, its highest since 2022, supported by the temporary shutdown at Nexa Resources' Cajamarquilla smelter in Peru and dwindling visible inventories, before retreating to still close around 3 percent higher on the week.

Crude Oil Soars

Crude was the week's standout performer. Brent settled above $109 a barrel and WTI near $105, up 8 percent and 10 percent respectively, after flows through the Strait of Hormuz remained heavily restricted. Tanker traffic from the Persian Gulf stayed minimal, while the IEA warned the market could remain severely undersupplied through October even if fighting ends next month, citing crude and product flow losses of roughly 4 million barrels per day during March and April.

Outlook Uncertainty

The latest outlooks from OPEC, the IEA, and the EIA highlighted growing uncertainty around the 2026 oil market balance. OPEC trimmed its 2026 demand growth forecast amid higher prices and geopolitical disruptions, while the IEA warned that structurally tight supply conditions could persist. The EIA, however, maintained that inventories could eventually rebuild if Hormuz disruptions begin to ease.

Geopolitical Tensions Remain

Geopolitical headlines remain sensitive heading into next week, with Trump's patience wearing thin and Iranian officials continuing to warn of mounting economic consequences for the US should the conflict escalate. Barring a ceasefire breakthrough that meaningfully restores Hormuz flows, elevated inflation pressures and the sharp repricing of Fed expectations are likely to remain the dominant drivers for both energy and metals markets in the near term.