Gold prices fell more than 1% today as the dollar bounced back after a higher-than-expected rise in US inflation led to aggressive rate hikes from the US Federal Reserve. In India, MCX gold futures fall 1% to near one-month low 50,135 per 10 grams while silver fell 1.4% 56,693 per kg.
In global markets, spot gold fell 1.1% to $1,705.94 an ounce. The US Department of Labor’s Consumer Price Index (CPI) report showed that the monthly CPI rose 0.1% in July to August, while a 0.1% decline is expected. Excluding volatile food and energy components, the core CPI rose to 6.3% from 5.9% in July.
US bond yields firmed up after US inflation data. The dollar index rose 1%, making gold costlier for overseas buyers. Although gold is considered a hedge against inflation, rising US rates increases the opportunity cost of holding bullion.
Sleep is an international commodity, and is priced in US dollars. Therefore, the price movement of the yellow metal is closely tied to the greenback. A stronger dollar makes gold cheaper and vice versa (expensive), which drives prices down.
Analysts now expect a 75-basis-point increase by the Fed at its September 20-21 meeting.
Wall Street widened losses and Treasury yields rose across the board after higher-than-expected inflation data came next week after the Federal Reserve bet on a jumbo rate hike.
A broad-based sell-off gripped equities, with the S&P 500 falling more than 3% and the heavy Nasdaq 100 sinking more than 4% as yield-sensitive stocks took the biggest hit.
Emkay Wealth Management Limited in a recent note said that gold may test the $1680 and $1630 levels in the near future.
“$1700 is an important support level for the yellow metal. The last time gold was at this level, there was a sharp jump that took it beyond the $1860 level. One on the 5-year gold chart Closer look shows high as $2070 and low as $1176.
“Gold is more likely to break the support level as the resistance levels have been tested several times in the last two months without any breakthrough. Therefore, testing of $1680 and $1630 on the downside cannot be ruled out, although it may not be able to move too low as a move to the downside moves it closer to the cost of production.” (with agency input)
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