Powell's restrictive stance triggers a wave of selling in global commodities

Global commodity markets recently experienced a widespread sell-off as investors adjusted their positions in response to a Federal Reserve that is expected to maintain a more restrictive policy for an extended period. Vivek Dhar, a commodities analyst at Commonwealth Bank of Australia (CBA), explained to Jin10 that the market responded by simultaneously selling risk assets, from precious metals to U.S. stocks, reflecting growing confidence that Jerome Powell will prolong his monetary tightening cycle.

Simultaneous Pressure on Gold, Silver, and Crude Oil

The market reaction revealed a pattern: investors perceive Powell as adopting a more aggressive stance than expected, triggering a cascade effect across commodity complexes. Gold and silver experienced significant declines along with crude oil and other base metals, while Asian indices mirrored the losses seen in U.S. futures. This behavior demonstrates how investors shifted resources from defensive assets and commodities into positions that benefit from a more restrictive policy.

Strong Dollar Worsens Downward Spiral in Commodities

An additional factor intensified the pressure on these assets: the strengthening of the U.S. dollar. As the global benchmark currency gained strength, commodities priced in dollars became less attractive to international buyers, creating an additional cycle of selling. This dynamic affected both precious metals and energy commodities, amplifying the magnitude of the downward movement experienced during the early days of the week.

Market Adjustment vs. Structural Change: Long-Term Perspective

Despite recent turbulence, Dhar maintains a balanced view on future movements. The analyst clarified that the current sell-off should be seen as a tactical adjustment rather than a fundamental change in commodity fundamentals. “We see this decline as a healthy correction that presents buying opportunities, not as the start of a prolonged downturn,” said the CBA strategist.

Supporting his long-term outlook, Dhar reiterates his bullish perspective on gold, maintaining his target of $6,000 per ounce during the fourth quarter of the year. This projection suggests that despite recent volatility in commodities, the structural fundamentals for precious metals remain favorable over the extended horizon.