Precious metals faced a sharp sell-off on the MCX this week, with gold falling nearly 4% to Rs 1.42 lakh per 10 grams and silver sliding 7.14% to Rs 1.96 lakh per kilogram. The decline follows a surge in crude oil prices, which has raised concerns that the US Federal Reserve may keep interest rates high for longer to control inflation. Investors are now closely awaiting the central bank's policy decision on October 27-28 for further direction.
Precious metals have come under significant selling pressure in both domestic and international markets this week. On the Multi Commodity Exchange (MCX), December gold futures fell by nearly 4% to settle at Rs 1.42 lakh per 10 grams. Silver saw a sharper correction, declining 7.14% to finish at Rs 1.96 lakh per kilogram. This downward movement mirrors the international trend, where gold prices on the Comex platform dropped over 4%, occasionally slipping below the USD 4,000 per ounce level during Friday's trading.
Why Rising Oil Prices Hurt Gold
The primary driver of this recent weakness is the surge in crude oil prices, which have stabilized above USD 117 per barrel. When energy costs rise, they push up the price of goods and services, leading to higher inflation. For investors, this creates a difficult environment because central banks, particularly the US Federal Reserve, often respond to rising inflation by keeping interest rates high.
Gold and silver do not earn interest or dividends. When interest rates in the economy are high, investors can earn better returns from government bonds or bank deposits. As a result, money tends to flow out of non-interest-earning assets like bullion and into interest-earning investments. This shift is currently strengthening the US dollar, which further makes dollar-priced gold more expensive and less attractive for buyers using other currencies.
Industrial Demand Struggles for Silver
Unlike gold, which is primarily held as a store of value or for jewelry, silver has significant industrial applications. It is used extensively in electronics, solar energy components, and various manufacturing processes. The current volatility in prices has led some industrial users to either reduce their consumption or seek cheaper alternatives to control costs. This softening of demand, combined with the broader economic pressure caused by high interest rates, has made silver more vulnerable to price drops compared to gold. The metal has struggled to maintain its support levels, leading to increased selling as technical factors take over.
What Investors Are Watching Next
The immediate focus for the market is the upcoming US Federal Reserve policy meeting scheduled for October 27-28. The commentary from the central bank regarding the future path of interest rates will be the next major trigger for price movement. If the Fed signals that it intends to maintain high interest rates for an extended period to combat inflation, the US dollar may remain strong, continuing to put pressure on precious metals. Conversely, any indication that the rate-hike cycle is nearing an end could provide some relief to the sector. Investors will track the official statement and policy updates closely to understand if the current downward trend in gold and silver prices will find a floor or continue in the coming weeks.