Gold price falls over ₹3400 from record high on strong US dollar, hawkish Fed

According to commodity market experts, gold prices have breached its previous support placed around $1,820 levels and now its immediate support in international spot market is placed at $1,785 to $1,780 levels. In domestic market, ₹55,500 support has been breached and now immediate support for the precious bullion metal is placed at ₹54,500 per 10 gm levels whereas 52,700 is expected to remain strong cushion area for the precious yellow metal. They said that dollar index has climbed 105 peak and its rise from below 103 to above 105 in one fortnight hawkish US Federal Reserve. Experts also added that gold prices are falling because higher borrowing cost of the US Central Bank has increased opportunity cost of bullion investment.

US dollar drags gold price

On why gold prices are falling across globe, Nirpendra Yadav, Senior Commodity Research Analyst at Swastika Investmart said, “Precious metals declined last week as the Fed’s meeting minutes kept its intentions tight on monetary policy. Now, investors are looking for more cues on monetary policy from economic data. Minutes of the Fed’s February meeting show that a majority of its monetary policy committee members favor raising interest rates this year as inflation remains more stable for an extended period than expected.”

Speaking on the reasons for fall in gold price, market expert Sugandha Sachdeva said, “As gold is a non-interest-yielding asset, higher interest rates increase the opportunity cost of holding gold and reduce its investment appeal. In terms of the key economic data, the US Q4 2022 GDP was revised to show a 2.7 percent annual gain slightly below the 2.9 per cent initial estimate, while Fed’s preferred inflation metric-the core personal consumption index rose at the highest pace in six months, beating expectations.”

“The core inflation accelerated by 0.6 per cent bringing the annual reading higher to 4.7 per cent in January, compared to an expectation of 4.3 per cent, which triggered further strength in the dollar index. Investors have been preferring the safety of the dollar, at the expense of gold as the greenback has been ascending higher for the last four weeks,” Sugandha added.

Gold price outlook

Asked about gold price outlook, Sugandha Sachdeva said, “Gold prices as of now are witnessing a corrective rally and seem vulnerable to further decline. There may be an intermittent bounce back but the trend looks skewed on the downside in the near term. In the international markets, prices have breached the crucial support of $1,820 per ounce and look primed to target the $1785-1780 per ounce zone. In a similar vein, the precious metal has pierced the support of ₹55,500 per 10 gm at the domestic markets and seems en-route to the level of ₹54,500 per 10 gm in the near-term and eventually ₹52,700 per 10 gm from a medium-term perspective, that is a strong cushion area for prices. Resistance for this week resides at ₹56,000 per 10 gm mark.”

Russia-Ukraine news in focus

However, Sugandha Sachdeva maintained that geo-political tensions surrounding Russia will however remain on the market participants’ radar and could impact gold prices.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.