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6E has slid to a 17-month low near 1.118 as the Fed’s September hike widened the rate gap with the euro area. September’s break below the 1.146 neckline, a level that had held as support since mid 2025, has turned that floor into resistance.

Since its January record, gold has made a series of lower highs while finding a base near $4,000, narrowing into a triangle. Prices now sit in the lower half of that range. A break above the falling trendline would signal the correction is over, while a close below $4,000 would open the way to deeper losses.

Copper has formed an ascending triangle at its record highs, with sellers repeatedly capping rallies near $6.80 while each pullback finds buyers at a higher level. A weekly close above that ceiling would confirm a breakout to fresh records, while a break below the rising trendline would signal the pattern has failed.

Heating Oil futures were trading near $4.94 per gallon, more than double their level a year earlier. The mid-September peak near $5.20 is the key resistance, and a weekly close above that level would signal the next leg higher.

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The U.S. Dollar Index is trading near its highest level in 18 months. A stronger U.S. dollar typically weighs on commodity prices. Because most raw materials are priced in dollars, a firmer currency raises their cost for buyers elsewhere, and demand tends to soften as a result. The Federal Reserve, under Chair Kevin Warsh, raised its policy rate on 16 September to a range of 3.75–4.00%, its first increase since 2023, and markets are pricing a further move by December. This issue is also published shortly before three major central bank decisions within two days: the Fed and the ECB on 29 October and the Bank of Japan on 30 October. In conditions of this kind, commodity prices would ordinarily be expected to come under pressure. However, this issue focuses on two markets that are departing from that conventional relationship. Heating oil continues to trade on its own fundamentals; gold has retreated from its August high but remains well above its June low, supported by sustained central bank purchases. In both cases, the support comes from forces that are largely independent of the dollar: physical scarcity in the case of heating oil, monetary demand in the case of gold.

Heating oil illustrates how little that pressure has mattered. NYMEX Heating Oil futures, the U.S. benchmark for diesel and other distillates, were trading near $4.94 per gallon on 13 October, having peaked near $5.20 in mid-September, while retail diesel in the U.S. set a record of $6.52 per gallon on 22 September. The tightness stems from disruption across several regions at once. According to the IEA, Ukrainian drones struck a Russian refinery on average once every three days over the first eight months of the year, and the diesel export ban Russia imposed on 8 July has been extended to the end of October, despite a partial easing under the deal with Washington. In the Middle East, Iran's near closure of the Strait of Hormuz has curtailed regional product exports, and China has suspended most of its fuel exports for October. The effects are visible in the U.S., where distillate inventories stood about 12% below their five-year average in the week to 2 October after record exports over the summer, with the peak of the heating season still ahead. Because this is a supply problem rather than a currency one, the policy response has focused on supply. An executive order signed on 5 October allows dyed diesel, normally tax exempt and restricted to off road use, to be used on highways for the rest of the year, and on 9 October the administration announced an arrangement for Russian diesel to reach global markets under a temporary sanctions license, and Moscow eased its export ban the following day to allow 500,000 tonnes to be sold abroad. Neither measure adds much. The dyed diesel order redistributes fuel already in the system, and the announced Russian volumes, roughly 4.8 million tonnes in total, amount to only about ten days of U.S. diesel demand spread over several months. The market appears to agree, with futures climbing to a three-week high on 13 October as doubts grew over the Russian pledge. The more meaningful risk to prices is the G7 agreement of 2 October to release 100 million barrels of diesel and other reserves through the IEA over four months, with a substantial diesel release front loaded into the first 20 days, alongside the possibility of an energy ceasefire or a mild start to winter.

The same energy shock has also shaped the gold market, though through a different channel. Where the support for heating oil is physical, the support for gold is monetary. Energy costs have pushed inflation higher. U.S. consumer prices rose 3.7% in the year to September, above expectations, with gasoline accounting for more than half of the monthly increase while core inflation stood at a more modest 2.6%. That has kept the Fed on a tightening path. The combination of a hawkish Fed, a firmer dollar and rising yields did weigh on the metal: Gold futures fell 6.6% in September and now trade around $4,170, roughly 11% below their August high. Prices have nonetheless held above their June low, when gold briefly slipped below $4,000, and official sector demand is an important reason why. Central banks behave differently from rate sensitive investors, who tend to reduce holdings when real yields rise, and China offers the clearest example. The People's Bank of China increased its gold reserves for a 23rd consecutive month in September, adding 740,000 ounces, or about 23 tonnes. It was the bank's largest monthly purchase since September 2023, and it came in a month when prices fell. Holdings now stand at 77.47 million ounces, roughly 2,410 tonnes, and by our calculation gold has risen from about 4% of China's official reserves at the end of 2023 to nearly 9% today.

The Treasury market explains why official buyers are leaning in. The 10-year yield climbed above 5.35% on 7 October, its highest since 2002, and it has risen for two reasons. One is Fed tightening, which hurts gold because gold pays no interest. The other is a rising term premium, the extra return investors demand to hold long dated US debt, which reached 0.82% at the end of September on the New York Fed’s measure, the highest since 2014. That premium reflects unease over a fiscal 2026 deficit the CBO puts at 5.8% of GDP and the volume of borrowing needed to fund it. When investors start demanding extra compensation to hold the world’s benchmark safe asset, reserve managers have reason to hold less of it and more of an asset that is no one’s liability. China is a case in point: its holdings of U.S. Treasuries fell to $618 billion in July, the lowest since 2008 according to U.S. Treasury data, partly reflecting lower bond prices, even as its gold reserves continued to rise. Rising yields and central bank gold buying are therefore two sides of the same story: a gradual loss of confidence in U.S. government debt. It is a rebalancing rather than an exodus: the 8 October 30-year auction still drew solid demand, with indirect bidders taking 72.3%. But it explains why official buyers treat each dip in gold as an opportunity rather than a warning.

Taken together, the dollar's influence on both markets has proved weaker than its recent strength would suggest. Heating oil is supported by physical scarcity, the product of refinery attacks, export restrictions and disrupted shipping lanes, with the heating season still ahead. Gold is supported by strategic, price insensitive buyers building a hedge against the same U.S. debt whose term premium continues to rise. The central bank decisions of 29–30 October are likely to set the near-term tone, and a hawkish Fed accompanied by a firmer dollar could weigh on both markets for several sessions. Neither a shortage of distillates nor a central bank's reserve policy, however, is likely to change on the strength of a single FOMC statement. Both markets are being driven by forces the dollar has so far been unable to displace, which makes them worth monitoring into year end.

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We conclude with the following hypothetical trades:¹

Case study 1: Long NY Harbor ULSD futures (HO)

If we hold a bullish view on distillates into the winter, we will consider taking a long position in NY Harbor ULSD (HO) futures, commonly referred to as heating oil, at the current price of 4.9400, with a stop loss below 4.5500, under the April high support, a hypothetical maximum loss of 4.9400 – 4.5500 = 0.3900, or $16,380 per contract. If supply disruption persists into the heating season and prices break above the mid-September peak, HO has the potential to rise toward 5.8500, near its 2022 record, resulting in a hypothetical gain of 5.8500 – 4.9400 = 0.9100, or $38,220 per contract. Each 0.0001 move in HO futures is worth $4.20 per contract (42,000 gallons).

Case study 2: Long Gold futures (GC)

If we hold a bullish view on gold, underpinned by sustained central bank accumulation, we will consider taking a long position in Gold (GC) futures at the current price of 4,170.0, with a stop loss below 3,940.0, a hypothetical maximum loss of 4,170.0 – 3,940.0 = 230.0 points, or $23,000 per contract. If official sector buying continues to defend the $4,000 base, GC has the potential to rise toward the falling trendline near 4,600.0, resulting in a hypothetical gain of 4,600.0 – 4,170.0 = 430.0 points, or $43,000 per contract. Each $1.00 move in GC futures is worth $100 per contract (100 troy ounces). Micro Gold (MGC) futures, at one tenth the size, offer the same exposure with a hypothetical risk of about $2,300 for those seeking a reduced capital outlay.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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