Powell's hawkish turn will trigger a global sell-off of commodities, including oil, gold, and silver.

The recent upheaval in commodity markets has highlighted how Federal Reserve decisions impact the entire commodity ecosystem. When investors perceived a more restrictive stance from Jerome Powell, they massively liquidated positions in oil, gold, silver, and industrial metals. Crude oil, one of the key energy commodities in global markets, experienced a sharp decline along with silver and gold at the beginning of the week.

Shift in investor sentiment: from risk to caution

Vivek Dhar, a commodity strategist at Commonwealth Bank of Australia, observed a significant shift in investor behavior. The market was simultaneously selling precious metals along with US equities, indicating a change in perception regarding the Fed’s long-term policy. Investors increasingly expected Powell to maintain a restrictive stance for an extended period. This parallel decline in gold and silver prices amid falling stock markets signaled rising risk aversion among market participants.

Strengthening dollar: an invisible weight on commodities

Dhar pointed out that the strengthening US dollar added additional pressure on all commodities, including oil as a key export raw material. A stronger dollar makes dollar-denominated goods more expensive for foreign buyers, reducing demand. This currency effect intensified the decline in prices across industrial metals, energy, and precious metals, creating a broad sell-off front.

Is this the beginning of a structural decline or just a technical adjustment?

Despite the seriousness of recent market movements, Dhar warned against hasty interpretations. He suggested that there is a fundamental difference between a temporary correction and a structural transformation of the commodity market. “This is an adjustment and a potential entry point, not a signal of fundamental change,” the strategist emphasized. His approach indicates a distinction between short-term market noise and long-term trends.

Long-term outlook despite current turbulence

It is noteworthy that despite the “epic shocks” in the precious metals market, Dhar maintains bullish forecasts for gold in the fourth quarter, predicting it could reach $6,000. This consistent outlook suggests that even with such dramatic corrections in oil and precious metals markets, the fundamental conditions may support price growth in the longer term.