Indian investors saw a sharp correction in precious metal ETFs on Monday, with silver funds dropping over 3.5% and gold funds falling by 2.6%. The sell-off follows a jump in global crude oil prices, which has raised concerns that the US Federal Reserve may keep interest rates high to fight inflation, making non-yielding assets like gold and silver less attractive.
Indian investors in precious metal exchange-traded funds (ETFs) faced a tough Monday as prices dropped significantly. The sharp decline was driven by a jump in global crude oil prices, which surged to over $107 per barrel following rising geopolitical tensions in the Middle East. This rise in energy costs has reignited fears of persistent inflation, pushing markets to price in a higher chance of US Federal Reserve interest rate hikes in October.
When crude oil prices climb, it often leads to expectations that central banks will maintain or increase interest rates to control the resulting inflation. For gold and silver, this creates a difficult environment. Because these metals do not pay interest or dividends, they lose their appeal to investors when government bond yields rise, as bonds offer better guaranteed returns in a high-rate environment.
Domestic investors witnessed significant selling pressure across the board. Silver ETFs were hit harder than their gold counterparts, with the SBI Silver ETF declining by 3.59 percent. Similar sharp losses were seen in the Nippon India Silver ETF and Tata Silver ETF, both of which dropped over 3.5 percent during the trading session.
Gold ETFs also saw a downward trend, though slightly less severe than silver. The ICICI Prudential Gold ETF fell by 2.64 percent, while other major funds like the SBI Gold ETF and Nippon India ETF Gold BeES recorded losses between 2.4 percent and 2.6 percent. This broad weakness reflects the performance of global bullion markets, where both gold and silver saw prices dip as the US dollar strengthened against other currencies.
For investors, the immediate monitorables include geopolitical updates from the Middle East, as these will influence crude oil price trends. Additionally, US economic data and official comments from the Federal Reserve will remain critical, as these will determine whether the current probability of an October rate hike holds true. In times of high volatility, the price of precious metals often reacts sharply to both interest rate expectations and the strength of the dollar.