Commodities Bleed as Fed's Hawkish Wings Clip the Market

Global risk appetite is dwindling rapidly, and commodities led by gold and oil are suffering steep losses as "hawkish" expectations regarding the Federal Reserve's (Fed) interest rate policies dominate the markets. As investors exit gold—seen as a safe haven—to cope with the opportunity cost of rising bond yields, oil prices have entered a free-fall driven by fears that a recession will crush demand.

Rate Shock and the Dollar's Ascent

Growing conviction that Fed officials will remain resolute in the fight against inflation has pushed US 10-year Treasury yields higher, carrying the Dollar Index (DXY) to its peak in months. This macroeconomic environment creates a toxic atmosphere for non-yielding assets and those priced in dollars.

■US 10-year Treasury yields have surpassed 4.50%, exerting pressure on risky assets.

■The Dollar Index is testing the 105 barrier, indirectly weighing down commodity prices.

■Market pricing for a 25 basis point rate hike at the upcoming meeting has risen to 80%.

Technical Erosion in Gold and Oil

Gold is breaking key support levels downward under the shadow of rising real rates, while weak demand outlook is pulling prices down on the oil front. Despite supply constraints, concerns over slowing economic activity are fueling selling pressure on the raw material.

■Spot gold breached the major support at $1,920, accelerating its decline towards the $1,900 zone.

■Brent crude slipped below $78 per barrel, approaching its lowest closes in three months.

■Daily losses exceeding 1.5% are observed across general commodity indices.

When I analyze depth data and brokerage distributions, I clearly see smart money liquidating long positions in commodities. notably, volumes in dark pools are not deep enough to absorb sell orders from market makers. In the current flow, the wind is still blowing downwards; however, the risk of a sharp short-squeeze below $1,900 should not be entirely ignored.