Gold sheds $100 in 5 days, heads for worst weekly dip in 6 months on hawkish US Fed policy; Should you buy the dip?

Spot gold rose 0.4 per cent to $2,338.67 per ounce as the US dollar index slipped 0.3 per cent, making gold relatively less expensive for other currency holders. US gold futures were up 0.2 per cent to $2,340.40. Bullion hit a record high of $2,449.89 on Monday, but has shed more than $100 since then and is on track for a three per cent drop this week, its worst weekly dip since early December.

Spot silver rose 1.3 per cent to $30.49. It hit an 11-year high on Monday. Platinum rose 1.2 per cent to $1,030.90 and palladium fell 0.3 per cent to $966.25. All three metals were headed for weekly losses. Coming to domestic prices, gold futures declined 0.42 per cent at ₹71,279 per 10 grams on the multi-commodity exchange (MCX).

Also Read: Gold hits one-week low, extends losses for third straight session on hawkish US Fed minutes, silver trades lower

Why is gold reeling pressure?

Analysts noted a slight lack of interest from Western investors in the uncertainty over when the Fed will cut rates. Once the Fed cuts rates, the same investors will increase exposure again, according to the market experts.

-Minutes from the Federal Reserve’s meeting showed the path to two per cent inflation could take longer than expected. Bets signalled growing doubts that the Fed would cut rates more than once in 2024, currently pricing in about a 63 per cent chance of a rate cut by November, according to the CME FedWatch Tool.

Higher interest rates make non-yielding gold a less appealing investment. Despite uncertainty around the US rate outlook, analysts have noted that gold prices have gained 13 percent so far this year, largely due to strong Chinese demand and ongoing geopolitical uncertainties.

-Some analysts say that there is a risk now that one might see somewhat lower gold purchases from the Chinese retail investors into the second half of this year, as the government is putting much more effort into reflating the economy. If that happens, one then revert back to the demand from the Western investors- taking us back to discussion about the Fed rate cuts.

Also Read: US Federal Reserve minutes show officials rally around higher-for-longer rates

Where are prices headed?

Gold and silver prices experienced a dramatic selloff over the past two trading days, with gold plummeting by more than $100 per ounce and silver plunging around $2.50 per ounce, according to analysts. Back home, gold has traded weak this week, experiencing a significant selloff from ₹74,350 to ₹71,500, a drop of more than ₹2,800 from weekly highs. 

Despite this pullback, the overall rally in gold remains strong, and this week’s decline should be viewed as a buying opportunity, with base support at ₹69,000. If prices fall below ₹69,000, a further selloff towards ₹66,000 could be expected,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities.

The dollar index rebounded after the FOMC meeting minutes, and U.S. 10-year bond yields also gained, pushing gold and silver prices lower. Additionally, US jobless claims declined last week to 215,000 from the previous 232,000, further pressuring gold and silver prices. However, robust demand from global central banks and geopolitical tensions could support prices at lower levels. 

‘’Gold has support at $1,312-$1,288 and resistance at $1,345-$1,361. Silver has support at $29.90-$29.75 and resistance at $30.51-$30.70. In INR, gold has support at ₹71,280- ₹71,050 and resistance at ₹71,840- ₹72,050. Silver has support at ₹89,550- ₹89,100 and resistance at ₹91,140- ₹91,780,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.

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Published: 24 May 2024, 10:55 PM IST