Gold rates slumped after Federal Reserve signalled it might raise interest rates sooner than expected
Optimistic global economic sentiment is also weighing on gold
Gold and silver prices today plunged in Indian markets, tracking an overnight crash in global rates. Gold futures on MCX were down about 3% to ₹46,880 per 10 gram while silver was down over 5% to ₹67,690.
In global markets, gold had fallen more than 2%, extending the previous day's 2.5% decline after after the U.S. Federal Reserve signalled it might raise interest rates sooner than expected. Hawkish comments from Fed officials lifted the dollar to a two-month high, while 10-year US Treasury yields jumped, weighing on the precious metal.
Though gold is seen as a hedge against inflation, but an increase in rates from the Fed could dampen bullion's appeal. Higher interest rates increase the opportunity cost of holding gold.
However, today in Asian trade, gold rates pared some of its previous day's losses as investors took advantage of a sharp fall. Spot gold fell 2.2% to $1,772.53 per ounce. Among other precious metals, silver slipped 4.2% to $25.83 an ounce.
Hareesh V, Research Head Commodities at Geojit Financial Services, said: "A sharp recovery in US dollar followed by the US Federal Reserve’s decision to keep its rates near zero and projection for two rate hikes by the end of 2023, dampened the sentiment of gold. Optimistic global economic sentiment and performance of risky assets are also weighing investor interest in the yellow metal. Prices are likely to correct further as long as it stays below the support of $1845. Anyhow, next major downside obstacle is seen at $1755. A close above $1915 is required to negate the short term bearish expiation in prices."
Overnight, Fed chairman Jerome Powell said any changes to its bond-buying program are some way off but conditions have improved enough to start discussing when to slow bond purchases. The Fed is buying $120 billion a month to inject money into financial markets and keep longer-term interest rates low.
"We are expecting that in a short term gold and silver may trade lower and safe haven demand may fade out. We believe that gold may test $1800 to $1780 levels soon and silver may test $26 to $26.50 soon, said Anuj Gupta, Vice President — Currency & Commodity Trade at IIFL Securities.