Commodity wrap: US-Iran stalled talks boost Brent crude 2%; gold slips

Oil prices edged up more than 2% on Monday as peace talks between the US and Iran stalled, while shipments through the Strait of Hormuz remained muted. 

Gold and silver dropped as energy prices climbed sharply, raising fears about higher inflation and elevated interest rates. 

The metals market is experiencing a subdued opening to the week.

Traders are largely holding back on extending their positions, awaiting more definitive indicators from China, the Middle East, and physical market flows.

“The tone feels constructive as the market digests a mix of strong producer profits, tighter nearby spreads, and some friction in Chinese trade activity,” Neil Welsh, head of metals market at Britannia Global Markets, said in an emailed commentary. 

At the time of writing, the three-month copper contract on the London Metal Exchange was at $13,250.78 per ton, down 0.5%, while the aluminium contract was at $3,582.30 per ton, down 0.6%. 

Oil climbs sharply

Crude oil prices edged sharply higher, with ICE Brent rising more than 2% to trade around $101.12.

This follows a significant rally last week, which saw Brent climb nearly 17%.

The upward movement is attributed to the breakdown of renewed US-Iran peace negotiations, which have dashed hopes for a near-term reinstatement of energy shipments through the Strait of Hormuz.

The Strait of Hormuz is largely closed by Tehran, while Washington has imposed a blockade on Iran's ports.

Consequently, traffic through the waterway is restricted; for example, Kpler shipping data indicated that only one oil products tanker entered the Gulf on Sunday. 

In light of reduced output from the Middle East, Goldman Sachs has revised its oil price forecasts for the fourth quarter, predicting Brent crude will reach $90 a barrel and West Texas Intermediate will hit $83 a barrel.

“There’s little alternative to fill a roughly 13m b/d shortfall. In the short term, inventories help to fill the gap, whether commercial or strategic reserves,” Patterson said. 

The persistence of this situation necessitates increasing demand destruction, which, in turn, will require prices to rise further, he added. 

Gold slips

After a steady start to the day, gold prices eased due to concerns about elevated interest rates.

Precious metals are non-yielding assets, which become less appealing when interest rates remain high. 

Despite the absence of direct talks—following US President Donald Trump's cancellation of his envoys' trip and his demand that Iran initiate contact for a deal—Pakistani mediation reports indicated that efforts to resolve the differences between Washington and Tehran are still ongoing.

The conflict between the US and Israel regarding Iran has caused a sharp rise in oil prices, intensifying worries about inflation and the possibility of interest rates staying high for an extended period. 

This week, investors will keenly await major central bank meetings.

They are looking for signals from policymakers on their assessment of the war's impact on the global economy and the likely trajectory for interest rates.

The US Federal Reserve is set to hold a policy meeting in Washington, which may be the final one led by Fed Chair Jerome Powell.

The central bank's policy statement is scheduled for release on Wednesday at 2 p.m. EDT (1800 GMT), followed by a news conference with Powell.

“All eyes will be on Mr Powell as he prepares to hand over to Fed Chair-designate Kevin Warsh next month. Then the question is if Mr Powell stays on at the Fed, something that President Trump strongly opposes,” said David Morrison, senior market analyst at Trade Nation.

The COMEX gold contract was last at $4,708.80 per ounce, down 0.7%, while silver was 1.2% lower at $75.495 an ounce. 

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