Precious metals under pressure as higher interest rate outlook dents sentiment

Kolkata: Gold and silver prices slumped further on Monday as rising inflation fears and expectations of higher global interest rates outweighed any safe haven bets amid the intensifying West Asia conflict.

Gold futures on the MCX dropped 5.6% from the previous close to ₹1,36,403 per 10 grams on Monday, while silver fell 11% to ₹2.03 lakh per kg, with investors cutting positions in a volatile market.

Gold exchange traded funds (ETFs) went down up to 9% on Monday. Around 24 gold-based ETFs slipped ranging between 6% and 9% while silver ETFs went down by up to 20%.


Gold has now fallen for nine straight sessions, hitting its lowest level since early January and losing more than 11% over the past week. Silver too has fallen by 15% in the last one week, the sharpest weekly fall since 2011.

The fall in prices comes amid escalating tensions between the US-Israel and Iran. Over the weekend, the situation worsened after President Donald Trump issued a 48-hour deadline for Iran to reopen the Strait of Hormuz, warning of severe retaliation targeting critical energy infrastructure. Tehran responded with threats to attack key regional assets if its energy assets are hit.

"These developments have significantly increased concerns over energy-driven inflation, which has been a major factor dragging gold lower in recent weeks," said Manav Modi, commodities analyst at Motilal Oswal Financial Services. "Markets now expect that sustained high oil prices could force central banks to adopt a more hawkish stance, limiting the appeal of non-yielding assets like gold."

On Monday, though, Trump said the US will not strike Iran's energy infrastructure for five days, leading to a fall in crude prices. The announcement came after market hours in India.

In the international market, spot silver fell 3.2% to $65 per ounce on Monday, while spot gold dropped 2.5% to $4,372 per ounce. Gold has fallen by $500 per troy ounce, its steepest weekly drop since 1983, and is now down nearly 17% over the past three weeks.

In Mumbai's spot market, gold was trading at ₹1,35,141 per 10 gm, while silver was at ₹2,01,500 per kg. For ETF investors, near-term factors such as rate expectations and currency moves remain transitory, fund managers said.

“The structural case for gold’s positive outlook remains intact. Current levels offer a more attractive entry than chasing prices higher for ETF investors,” said Chirag Mehta, chief investment officer at Quantum AMC.

“For those underweight, buying during such phases of correction builds a better cost basis. Treat this dip as an accumulation opportunity as such opportunity has become more and more rare in the current gold bull cycle.”

The correction is likely to weigh on retail sentiment in the near term, experts said. Global factors such as a strong US dollar and uncertainty over interest rates may keep prices volatile, prompting investors to hold back on investment-led purchases.

“The current pause and correction in gold and silver prices would continue to influence retail sentiment in the near future,” said Aksha Kamboj, vice president at India Bullion & Jewellers Association.

“Global factors, like the strength of the US dollar and the uncertainty over interest rates would likely prevail, which may cause prices to fluctuate, hence encouraging customers to hold back on making investmentled purchases. During this phase, however, the trend is expected to result in higher planned and need-based buying,” she said.