How is US debt ceiling crisis affecting gold price, Dollar-Rupee rate - Explained

Gold prices have remained weak this week, staying below the ₹61,000-level, as market sentiment has been influenced by concerns over the US debt crisis. The role of the dollar index has also played a significant part in the weakness of gold. The strong resistance at $1,980 in Comex is expected to keep gold prices subdued. The uncertainty surrounding the US debt crisis is likely to continue affecting gold prices until a resolution is reached. Gold in MCX can be seen falling towards ₹58,500 in case of no further positive steps on the US debt crisis.

Meanwhile, the Indian rupee has weakened in the past two weeks due to the strengthening of the dollar. Market participants have been shifting their investments from other currencies to the dollar, putting pressure on the rupee. Unless there is a conclusive resolution to the US debt crisis, the weakness in the rupee is expected to persist. The rupee faces resistance at ₹82.50 and has support at ₹83.

US Dollar, Indian rupee and Gold prices

A significant positive trigger for both gold prices and the rupee could be a pause in US interest rates. If the US Federal Reserve decides to pause rate hikes, it could lead to a weakening of the dollar index, which would benefit gold prices and support a potential rally in the rupee. On a positive note, Gold in MCX on interest rate pause can witness strength towards ₹61,000 from where it has taken resistance earlier.

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In conclusion, the weakness in gold prices is driven by the US debt crisis and the influence of the dollar index. The resolution of the debt crisis will be a key factor in determining the direction of gold prices. The rupee, on the other hand, is expected to remain weak as long as there is no conclusive resolution, with the possibility of a positive rally if US interest rates are paused.

The author, Jateen Trivedi is VP Research analyst at LKP Securities

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