Gold prices witnessed a sharp decline in the early morning session today due to the hawkish stance of the US Federal Reserve on interest rates, which has fueled an increase in US dollar rates. On the Multi Commodity Exchange (MCX), the gold futures contract for August 2024 expiry opened lower at ₹71,475 per 10 gm and quickly hit an intraday low of ₹71,401. In the international market, spot gold prices are oscillating around $2,315 per ounce, while Comex gold prices hover around $2,330 per troy-ounce.
Commodity market experts have noted that gold prices are currently under pressure due to the US Fed’s position on interest rates. Although the Fed has maintained the status quo on rates, its commentary has turned more hawkish regarding rate cuts in 2024. Initially, the Fed had announced three rate cuts, but this has now been revised to just one, leading to a rise in US dollar rates and Treasury yields, thereby impacting gold prices.
What do experts say
Anuj Gupta, the Head of Commodity & Currency at HDFC Securities, explains the situation: “The drop in gold prices today is a direct result of the US Federal Reserve’s meeting outcome. The Fed had initially announced three rate cuts in 2024, but in their recent commentary, they have revised this to just one. This change has led to an increase in US dollar rates and Treasury yields, causing gold prices to fall.” Understanding this direct correlation between the US Fed’s decisions and gold prices is crucial for grasping market dynamics.
Dhawal Ghanshyam Dhanani, Fund Manager at SAMCO Mutual Fund, adds, “The US Fed decided to hold the benchmark rate in the 5.25-5.50% target range for the sixth consecutive meeting, unlike the European Central Bank, which became the fourth major central bank to cut its policy rate after Switzerland, Sweden, and Canada last week. Until now, the market priced for 1-2 rate cuts by December; however, the Fed had recommended 2-3 cuts back in March via their ‘dot plot’. Surprisingly, the Fed indicated a hawkish stance by suggesting just one rate cut this year versus three in March—cementing higher for longer rates for the markets.”
Kotak Securities also commented on the situation: “Federal Reserve officials dialled back their expectations for interest-rate cuts this year. However, Chair Jerome Powell kept the door open for more as he emphasized that the new forecasts represented a conservative approach. Comex Gold trades 1% lower after three consecutive sessions of gains, and LME base metals partially reverse advances made yesterday after a cooler US inflation report. Fed policymakers indicated they now expect to cut rates only once in 2024 compared to three reductions in the March meeting. The Fed’s ‘dot plot’ showed four policymakers saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts.”
For those actively monitoring the gold market, it’s crucial to note the key levels. On the MCX, the gold rate has immediate support at the ₹70,800 mark, with a potential hurdle at ₹72,000 per 10 gm. In the international market, spot gold has immediate support at the $2,300 level, with crucial support at $2,280 per ounce. On the higher side, spot gold faces an immediate hurdle at $2,330, and a crucial hurdle at $2,350. Being aware of these levels empowers investors to make informed decisions in the gold market.
