Gold and silver prices dropped more than 1% on the MCX on Wednesday (2 September) morning, mirroring weak global trends. MCX gold October futures were down 1.03% at ₹1,50,164 per 10 grams, while MCX silver December futures were 1.26% down at ₹2,32,464 per kg around 9:05 AM.
US gold prices dropped to their lowest levels in over three weeks, pressured by an uptick in the US dollar and global bond yields amid escalating US-Iran conflict, higher oil prices, and increased rate-hike fears.
Brent crude futures climbed more than 1% to trade near $96 per barrel as the US and Iran launched strikes against each other, while the dollar index rose to a two-week high of 99.80, making greenback-backed bullion slightly more expensive for buyers in overseas currencies.
Tehran launched missiles and drones in retaliation for a fresh wave of US strikes, escalating a West Asian conflict.
Surging bond yields globally also seem to be weighing on gold’s safe-haven appeal. The US 10-year bond yield jumped to 4.82%. Japan’s 10-year bond yield reached 3% for the first time since 1996. U.K. 10-year government bonds- Gilts- jumped to 5.23%, their highest level since June 2008.
The biggest worry for gold traders is the US-Iran conflict, which has driven energy prices higher, raising risks of inflation shooting up. Higher inflation can prompt the US Federal Reserve and other major central banks to raise interest rates. The prospects of inflation flare-up and interest rate hikes are also pushing bond yields higher.
Gold prices tend to decline in an elevated interest rate regime, as it is a non-yielding asset.
“Gold prices decline as investors anticipate interest rate hikes by the US Federal Reserve following a sharp rise in global bond yields and oil prices. Global bond yields climbed amid mounting inflationary pressures and growing expectations of imminent rate hikes. Fed Chair Kevin Warsh’s pledge to combat inflation further reinforced the hawkish outlook,” Jigar Trivedi, Senior Research Analyst at IndusInd Securities, noted.
The focus is now on the ADP employment report due Wednesday and Friday’s nonfarm payrolls for further clues on the Fed’s monetary policy trajectory.
“The weakness in MCX is in line with international gold, which has fallen nearly 6% over the past three sessions as renewed U.S.-Iran tensions pushed oil prices sharply higher, while rising Treasury yields and a firmer dollar added pressure on bullion,” said Ravi Singh, Chief Research Officer at Master Capital Services.
“Markets are now pricing close to a 70% probability of a September Fed rate hike, significantly increasing the opportunity cost of holding gold. Although the broader debasement theme and strong ETF demand remain supportive, the near-term combination of higher oil, yields and Fed hike expectations keeps the bias bearish,” said Singh.
Gold and silver prices: Key levels to watch
Trivedi expects MCX gold October futures to continue with the downward trajectory as sentiment is weak in the global markets. He sees support for the metal at ₹1,51,000 per 10 grams.
According to Singh, MCX gold prices have now slipped below the 21-day EMA near ₹1,55,000, keeping near-term momentum weak and opening the possibility of a move towards the next major support near ₹1,47,000.
“As long as prices fail to reclaim ₹1,55,000- ₹1,58,000, the sell-on-rise strategy remains preferred,” said Singh.
Manoj Kumar Jain of Prithvifinmart Commodity Research said MCX gold has support at ₹1,50,500 and ₹1,49,100, and resistance at ₹1,53,000 and ₹1,54,400, while silver has support at ₹2,32,000 and ₹2,30,000 and resistance at ₹2,38,000 and ₹2,41,000.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
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