Precious metals extended their decline for a second consecutive session on Friday, 19 June, as expectations of a potential interest rate hike by the US Federal Reserve boosted the dollar. Delays in negotiations between the US and Iran further dampened sentiment, putting gold and silver on track for another weekly loss.
COMEX gold futures fell another $107 per troy ounce to an intraday low of $4,138, taking their week-to-date losses to 1.5%. COMEX silver futures declined nearly $3 per troy ounce to $63.35, heading for a sixth consecutive weekly decline.
The US Federal Reserve signalled that an interest rate hike may be required later this year to bring inflation back toward its 2% target. Inflationary pressures have been exacerbated by the sharp rise in crude oil and energy prices stemming from ongoing tensions in the Middle East.
Nine of the Fed’s 19 policymakers now expect at least one rate hike later this year, while markets currently assign a roughly 70% probability of a rate increase by September.
Higher interest rates typically reduce the appeal of gold, as the precious metal does not generate any yield. Additionally, expectations of tighter monetary policy tend to strengthen the US dollar, making dollar-denominated commodities such as gold and silver more expensive for holders of other currencies.
The US Dollar Index traded higher during the session, briefly touching the 101 mark against a basket of major currencies as rate hike expectations strengthened. The greenback is now on track for its strongest weekly gain in a month.
Meanwhile, talks on a permanent agreement between Washington and Tehran, which were scheduled to take place in Switzerland on Friday, have been delayed, raising doubts over the timing and durability of any potential recovery in Iranian oil supplies.
Israel and Iran-backed Hezbollah militants reportedly clashed overnight in Lebanon, a development that the Financial Times said contributed to the postponement of the talks. Iran has reportedly made a truce in Lebanon a precondition for advancing its preliminary agreement with the United States.
The US had earlier signed an interim agreement with Iran under which it lifted restrictions on Iran’s ports and allowed the country to resume oil exports. The agreement also calls for the unfreezing of Iranian assets, although the timeline for implementation remains unclear.
Near-term pressure persists, but long-term gold fundamentals remain intact, says analyst
Commenting on the recent volatility in precious metal prices, Satish Dondapati, Fund Manager – ETF at Kotak Mutual Fund, said gold and silver have witnessed a sharp correction over the last few sessions as a stronger U.S. dollar and higher bond yields weighed on investor sentiment.
According to Dondapati, investors are scaling back expectations of near-term US rate cuts, a trend that has strengthened the dollar and increased pressure on precious metals. He added that silver has also seen some profit-booking after its recent strong rally.
Despite the recent weakness, Dondapati remains constructive on gold’s longer-term prospects. He said ongoing geopolitical tensions, steady central bank purchases, and concerns over global economic growth continue to provide support to the yellow metal.
However, he cautioned that precious metal prices are likely to remain sensitive to movements in the US dollar, bond yields, and any changes in market expectations surrounding future Federal Reserve policy decisions.
“While the near-term trend remains weak, the broader outlook for gold continues to be constructive,” Dondapati said.
MCX gold slides ₹3,600; silver slips below ₹2.30 lakh
Tracking weakness in international markets, the near-month gold futures contract on MCX dropped ₹3,600 per 10 grams to hit an intraday low of ₹1,45,710, extending its losing streak to a second consecutive session.
With today’s decline, the yellow metal’s weekly losses have widened to 2.5%, putting it on track for a fourth straight weekly decline. The silver futures contract on MCX also came under heavy selling pressure, falling ₹9,410 per kg to ₹2,28,162, slipping below the ₹2.30 lakh mark.
Today’s decline follows a sharp correction in the previous session, when the white metal tumbled nearly ₹14,000 per kg. Silver is now on track to post its fifth consecutive weekly loss
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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