Gold and silver prices crashed up to 2% in the evening session on Monday, 14 September, tracking weak global cues.
MCX gold October futures were down 1.19% at ₹1,50,973 per 10 grams, while MCX silver December contracts were 1.70% down at ₹231000 per kg around 5:15 PM. The commodity market was closed in the first half of the session due to Ganesh Chaturthi.
International gold prices were also down amid heightened concerns about a possible interest rate hike by the US Federal Reserve on Wednesday.
US gold futures for December delivery have crashed more than 2% in just two consecutive sessions to hit $4,317.95 per troy ounce after the US CPI data came above expectations, reinforcing concerns that the Fed may step up its moves against inflation and raise interest rates on 16 September.
According to Reuters, the CME FedWatch Tool indicates traders are pricing in about an 89% chance of a rate hike by the Fed this week, up from about 67% before last week’s inflation data.
US CPI for August rose 3.4% year-on-year and 0.3% month-on-month. The Fed’s favoured gauge of inflation- the US personal consumption expenditures (PCE) price index- increased by 3.7% year-on-year in July, above the Fed’s long-term 2% inflation target for 65 straight months. August PCE prints are due on 30 September.
Crude oil benchmark Brent crude jumped nearly 4% to trade above $108 per barrel, fuelling inflation fears. A sharp jump in oil prices was triggered by new Houthi strikes on Saudi Arabia and Iranian attacks on ships in the Gulf.
Gold price outlook
According to Vandana Bharti, Head of Commodity Research at SMC Global Securities, gold has already seen a meaningful correction from its recent highs as the market has gradually begun to price in the possibility of a Fed rate hike. So, to some extent, the expected hike’s negative impact is already reflected in prices.
Bharti believes Wednesday’s Fed decision will be a key trigger for the next big move.
“If the Fed delivers a 25-bps rate hike, gold could see another 1–2% correction, particularly if the Fed signals that rates may remain higher for longer. The real shock, however, would be a surprise 50-bps hike. That could lead to a sharp spike in the dollar and trigger aggressive profit booking in gold, resulting in a much steeper correction,” said Bharti.
Bharti believes if the Fed keeps rates unchanged, despite expectations of a hike, the reaction could be strongly positive for gold.
“After the recent correction, short covering along with fresh buying could trigger a sharp rebound. In that scenario, MCX gold could move towards ₹1,56,000– ₹1,58,000, while COMEX gold could test $4,580–$4,600. Traders should be prepared for very high volatility around the announcement. I would keep a broad trading range of ₹1,47,000– ₹1,56,000 for MCX gold and $4,320–$4,600 for COMEX gold,” said Bharti.
Aamir Makda, commodity and currency analyst- commodity technical research at Choice Broking, also underscored that market expectations have already priced in a probable 25-basis-point increase, which might result in a brief pullback in gold prices towards $4,200 – $4,250.
“If the Fed raises rates but also signals a pause in future hikes, gold could experience a sell the rumour, buy the news rally towards resistance levels. Conversely, if the Fed maintains rates and projects a hawkish stance, immediate reactions may lead to an initial spike in gold prices due to the lack of a rate increase,” said Makda.
However, Makda added that as investors assess the post-announcement details, including the Fed chair’s statements and future rate projections, the spike may reverse, pushing gold into a downward trend as higher future rate expectations sustain upward pressure on real Treasury yields and the dollar.
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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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