Gold price tumbles Rs 1,800/10 grams, silver slips below Rs 2.21 lakh/kg. What's next?

Gold and silver prices fell more than 1% on the Multi Commodity Exchange (MCX) on Tuesday as simmering tensions in the Middle East strengthened expectations that the US Federal Reserve will raise interest rates further to curb elevated inflation.

Gold futures with August expiry on the MCX fell Rs 1,834 per 10 grams, or 1.3%, to Rs 1,40,568 per 10 grams. Futures contracts with October expiry also declined more than 1% in morning trade. Silver futures with September expiry, meanwhile, fell Rs 1,960 per kg to Rs 2,20,674, while contracts with December expiry also declined more than 1%.

In the international market, gold prices fell more than 1% on Tuesday and were on track to record their biggest monthly decline since October 2008. Spot gold fell 1.5% to $3,956.92 per ounce by 0221 GMT, shedding 12.7% so far this month and putting it on track for a fourth consecutive monthly decline. Spot silver fell 2% to $57.13 per ounce, platinum lost 1.1% to $1,557.21, and palladium slipped 0.4% to $1,208.17. All three metals were headed for monthly as well as quarterly losses.


Gold was also on track for its first quarterly decline since 2024 and its biggest since the June quarter of 2013, as the Iran war sent energy prices sharply higher, stoking inflation fears and strengthening expectations of further interest rate hikes.

Also read: Gold set for fourth monthly fall on bets of Fed rate hikes

Traders are now expecting three Federal Reserve rate hikes this year and are pricing in about a 64% probability of a September increase, according to the CME FedWatch Tool. While gold is traditionally considered a hedge against inflation, it tends to lose appeal in a high-interest-rate environment.

Investors are awaiting possible talks between the US and Iran in Doha after tit-for-tat strikes over the weekend raised concerns about the fragility of their interim peace deal and disrupted shipping through the Strait of Hormuz.

Iran, however, has said that no meeting has been scheduled, as weekend missile exchanges between both sides tested the interim ceasefire that ended the four-month-old war.

Investors are also awaiting the June ADP employment report and nonfarm payrolls data, both due this week, for further clues on the Fed's interest rate trajectory.

"You have high inflation, high interest rate expectations and a strong dollar, and that is overriding all other bullish factors that are typically associated with a gold rally," Reuters quoted Edward Meir, an analyst at Marex, as saying.

Also read:Households rush to cash out old gold amid fears of a crash

What lies ahead?

Gold witnessed fresh profit-taking in the previous session as prices faced strong resistance near $4,100 on COMEX and around Rs 145,500 on the MCX, said Jateen Trivedi, VP Research Analyst – Commodity and Currency at LKP Securities.

"A stronger US dollar continued to weigh on bullion, while expectations of higher interest rates reduced the appeal of non-yielding assets such as gold. Buying interest from central banks has also slowed as markets reassess the global interest rate outlook. Investors are now awaiting the US ADP Employment Change report, nonfarm payrolls data and the unemployment rate, which will play a crucial role in shaping the dollar's direction and gold's next move," he said.

The analyst noted that volatility is likely to remain elevated until the release of these key economic data points. Technically, gold is expected to trade in the Rs 140,500–145,500 range, with rallies likely to face selling pressure unless macroeconomic data weakens the dollar.

Also read: Diamonds shine as gold buyers adapt to price volatility

(With inputs from agencies)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)