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The precious metals market experienced a significant downturn on Tuesday, with gold and silver prices falling for the second consecutive day. The primary driving force behind this decline was attributed to sluggish demand from jewelers coupled with weak global cues, according to the All India Sarafa Association. This downward trend was further exacerbated by a strengthening dollar and expectations of rising inflation, factors that negatively impacted the precious metals.
The price of 99.9 percent purity gold plummeted by a substantial Rs 1,750, settling at Rs 77,800 per 10 grams. This marked a significant drop from the previous session's closing price of Rs 79,550 per 10 grams. Similarly, silver experienced a steep decline of Rs 2,700, closing at Rs 91,300 per kg, a stark contrast to the previous day's closing price of Rs 94,000 per kg.
The downward trend in gold prices extended to the futures market as well. On the Multi Commodity Exchange (MCX), gold contracts for December delivery plummeted by Rs 612, or 0.81 percent, settling at Rs 74,739 per 10 grams. This marked the first time gold had dipped below Rs 75,000 since October 10, indicating a significant shift in market sentiment.
Several market analysts attributed the gold price decline to the strength of the dollar index, which kept gold prices below USD 2,600 on COMEX. The prevailing downtrend, according to analysts like Jateen Trivedi, VP Research Analyst of Commodity and Currency at LKP Securities, suggested that further weakness could persist, potentially driving prices down towards Rs 72,000 if COMEX gold remains below USD 2,600 and tests the USD 2,500-level in upcoming sessions.
Silver futures also followed a similar trend, with December delivery contracts slumping by Rs 742, or 0.83 percent, to Rs 88,440 per kg on the MCX. In the overseas markets, Comex gold futures experienced a decline of USD 19.90 per ounce, or 0.76 percent, settling at USD 2,597.80 per ounce. This decline was linked by Saumil Gandhi, Senior Analyst of Commodities at HDFC Securities, to Donald Trump's victory in the presidential election, which fueled economic optimism and contributed to the dollar's rally.
Furthermore, Trump's victory was seen as a positive sign for a potential ceasefire in ongoing conflicts, thereby decreasing the demand for safe-haven assets like gold. Market participants are now eagerly awaiting the release of US inflation data, including the Consumer Price Index (CPI), scheduled for Wednesday, as well as speeches from Federal Reserve members. This data will provide valuable insights into the economic landscape and could influence gold's trajectory.
Comex silver futures traded 0.6 percent lower at USD 30.43 per ounce in Asian market hours. Abans Holdings' Chief Executive Officer Chintan Mehta pointed to the dollar index's surge to 4-month highs as a contributing factor to the weak gold prices. The probability of a mere 25-basis points interest rate cut by the US Federal Reserve (Fed) in December further weakened gold's appeal.
Trump's proposed policies, including increased tariffs and stricter immigration controls, are expected to drive inflation higher. This, in turn, could soften expectations for significant rate cuts by the Fed, further reducing gold's appeal as a hedge against inflation. This combination of factors has created a bearish sentiment for gold, leading to its recent price decline.