After the Fed chairman suggested last week that high interest rates will persist for some time in order to control inflation, gold and silver prices plummeted dramatically in India today. Gold futures on the MCX plunged 0.5% to 50,970 per 10 grammes, hitting a one-month low. Futures for silver fell 1.3 dollars to 54063 per kilogramme. The price of the yellow metal fell by about 500 on Friday, falling along with global rates.
Spot gold prices decreased further today on international markets due to a strong US dollar. As the dollar index increased to almost a two-decade high of 109.29, spot gold lost 0.3% to $1,732.17 per ounce. Bullion becomes more expensive for holders of other currencies when the dollar is stronger. Spot silver dropped 1% to $18.69 per ounce and platinum dropped 1% to $855.27, among other precious metals.
Ravindra Rao, VP- Head Commodity Research at Kotak Securities, said: “COMEX gold trades modestly lower near $1740/oz weighed down by firmness in the US dollar and bond yields following hawkish comments from Fed Chairman Jerome Powell. Fed Chairman reaffirmed the need for continuing with rate hikes to get inflation under control which was largely expected but still we saw severe market reaction. The US dollar gains are also challenged by hawkish comments from ECB officials. While market reaction seems little over exaggerated, gold prices may remain under pressure until US dollar and bond yields remain higher."
In order to combat the worst inflation in decades, the US central bank has already increased its benchmark overnight interest rate four times this year. While strengthening the currency, higher interest rates raise the potential cost of keeping non-yielding bullion.
“Fed Chairman at the Jackson Hole symposium mentioned that higher inflation is likely to bring some pain to household and businesses. He added that US economy would continue to show strong underlying momentum and also pledged that the central bank will “use our tools forcefully" to attack inflation. On interest rates the Fed will be dependent on the incoming economic data," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
"Inflation continues to be the major concern for the Fed but in the process it could slower growth going ahead. Equities fell sharply while US dollar and 10 year yields rose in expectation of further tightening announcement by the Fed. Overall commentary is hawkish but Fed will be data dependent. Dollar will continue to get support at lower levels," he added.
Last week, dealers in India offered a discount of up to $7 per ounce on official domestic gold prices, an increase from the discount of $4 the week before. India's gold prices include a 3% GST and a 15% import fee.
