Gold and silver prices plunge as the US dollar strengthens; gold rates could move sideways down

Bullion prices sold off during the week due to the strengthening dollar and the hawkish stance of the US Fed. (Photo: REUTERS)

Through Tapan Patel

Commodity prices traded lower as most commodities in the non-agricultural segment were sold, with the exception of crude oil. Bullion prices traded lower on the stringer dollar on reduction signals from the US Fed while base metals traded weakly due to the crackdown in China and weak demand. Crude oil prices prolonged the rally thanks to the strong recovery in fuel demand in the United States and Europe.

Gold prices traded lower, with COMEX spot gold prices plunging 6.04% to $ 1,764 an ounce for the worst week in 15 months. Gold prices at MCX ended 4% lower at Rs 46,728 per 10 grams limiting the decline supported by the depreciation of the rupee. The spot rupee fell 1.07% against the dollar for the week, continuing its decline. Gold ETF holdings surged as holdings of SPDR gold stocks rose to 1,053 tonnes, from 1,045 tonnes for the week.

Silver prices joined the selloff in precious metals, with COMEX spot silver prices falling 7.63% and ending at $ 25.79 per ounce for the week. MCX Silver July futures contracts ended down 6.41% at Rs 67,598 per KG. Silver prices traded lower following weak global indices to the stronger dollar and the sale of industrial metals.

Bullion prices sold off during the week due to the strengthening dollar and the hawkish stance of the US Fed. The US Federal Reserve signaled on Wednesday that it would hike interest rates at least twice by the end of 2023 to 0.6% from current levels of zero to 0.25%. Comments from St. Louis Fed Chairman James Bullard added to the pressure on Friday by observing that the central bank may have to consider raising interest rates by next year instead of 2023. The market will focus on the Fed’s discussions on when it will begin rolling out the month-to-month asset purchase program. The dollar index rose 1.84% to 92.23, reducing demand for safe-haven assets like gold and silver.

We expect gold prices to trade sideways lower over the coming week with COMEX spot gold resistance at $ 1800 per ounce and support at $ 1720l ‘ounce. At MCX, gold prices in August have short term resistance at Rs 47,500 per 10 grams and support at Rs 46,000 per 10 grams. The COMEX silver spot has short term resistance at $ 27 per ounce with support at $ 24.80 per ounce. MCX Silver July has significant resistance at Rs 70,200 per KG and support at Rs 65,500 per KG.

(Tapan Patel is Senior Analyst (Commodities) at HDFC Securities. The opinions expressed are those of the author. Please consult your financial advisor before investing.)

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