Gold and silver prices fell last week, with MCX gold settling at ₹1,44,000 per 10 grams and silver at ₹2,23,000 per kg. The decline follows a strengthening US dollar and shifting expectations for Federal Reserve interest rate policy, which continue to keep precious metals under pressure.
What Happened
Gold and silver prices faced significant selling pressure in the past week, both in Indian and international markets. On the Multi Commodity Exchange (MCX), gold futures for August delivery dropped by 2.06% to settle at ₹1,44,000 per 10 grams. Silver futures for September delivery saw a sharper decline, falling 6.4% to reach ₹2,23,000 per kg.
International markets reflected similar weakness. Comex gold futures on the New York Mercantile Exchange fell 3.5% to $4,096.3 per ounce, while silver prices tumbled 10.7% to $59.67 per ounce. Despite a brief recovery on Friday following US inflation data, the overall weekly trend remained negative.
The Impact of US Dollar Strength
The primary driver of this recent weakness is the strength of the US dollar. Gold and silver are priced in dollars. When the dollar becomes stronger, these precious metals become more expensive for investors holding other currencies, which typically reduces demand.
Furthermore, when the US dollar is strong, investors often prefer to hold cash or dollar-denominated assets rather than non-yielding assets like gold. This shift in preference has contributed to the selling pressure in the bullion market.
Why Economic Data Matters
Investors are now turning their attention to upcoming US economic reports, specifically non-farm payrolls and manufacturing Purchasing Managers' Index (PMI) data. These indicators are crucial because they influence the Federal Reserve's stance on interest rates.
If the US economy shows robust growth and low unemployment, the Federal Reserve may feel less pressure to lower interest rates. Higher interest rates are generally negative for gold because they increase the opportunity cost of holding the metal, which does not pay any interest or dividends.
Geopolitics and the Inflation Hedge
Although geopolitical tensions between the US and Iran usually act as a supporting factor for gold, this effect has been muted recently. The US dollar has maintained its status as the preferred safe-haven asset during this period of uncertainty, overshadowing gold’s traditional role.
Additionally, crude oil prices have seen a correction of nearly 10%. As crude oil is a key component of inflation, its price decline has eased concerns about rising costs. When inflation expectations cool down, the appeal of gold as an inflation hedge—a protective asset used to preserve value when prices rise—also tends to diminish.
What Investors Should Track
Going forward, the direction of bullion prices will depend on the upcoming US economic data. Key monitorables include:
- US Non-Farm Payrolls: This data will provide clues on the health of the US labour market and influence Federal Reserve policy decisions.
- Manufacturing and Services PMI: These figures will help the market understand the pace of US economic activity.
- US Treasury Yields: A rise in yields typically draws money away from gold and silver.
- Central Bank Activity: Continued buying by central banks remains a supporting factor that investors watch for any shift in trend.