MCX gold price breaks below ₹1.50 lakh per 10 grams as selling extends to 7th day on firm US dollar

Gold prices have remained under sustained pressure lately, giving up most of the gains accumulated in August as renewed tensions in the Middle East pushed crude oil prices higher, stoking inflation concerns and boosting expectations of a US Federal Reserve interest-rate hike.

The rising inflation fears, in turn, lifted the US dollar, reducing the appeal of the non-yielding safe-haven asset.

MCX gold prices have fallen 1.3%, or ₹2,064 per 10 grams in Wednesday's trade, breaking below the ₹1.5 lakh mark to hit the day's low of ₹1,49,665. The decline marked gold's lowest level in more than three weeks and its seventh consecutive session of losses.

Considering today's low, the yellow metal has cumulatively dropped ₹13,564 per 10 grams over the last six trading sessions (including today).

What is behind the sharp fall in MCX gold prices?

The renewed escalation in the Middle East has added to inflation concerns, prompting investors to reassess the likelihood of a US Federal Reserve rate hike and making the yellow metal less attractive.

The US and Iran exchanged strikes for the first time in about a month, with American forces reportedly hitting an island in the Strait of Hormuz and the Islamic Republic responding by launching attacks on the United Arab Emirates and Jordan.

The escalating tensions pushed crude oil prices higher, with Brent crude climbing to a more than one-month high as traders bet that the attacks could further disrupt energy flows through the strategically important waterway.

Adding to the pressure on gold, markets also assessed the economic impact of the energy shock and turned to the US dollar, which hit a two-week high. A stronger dollar makes greenback-priced bullion more expensive for overseas buyers.

Meanwhile, traders are now pricing in a 68% chance of an interest-rate hike at the central bank's policy meeting this month, Reuters reported, citing the CME FedWatch Tool. The probability stood at just 34% before Fed Chair Kevin Warsh spoke about reining in inflation at Jackson Hole on Friday.

While gold is typically seen as an inflation hedge, higher interest rates tend to diminish the appeal of the non-yielding metal, putting further pressure on prices.

Can MCX gold hold above the ₹1,48,000 level?

Jateen Trivedi, VP of Research Analyst – Commodity and Currency at LKP Securities, said gold prices remained under pressure amid a stronger dollar and rising bond yields.

Trivedi said gold prices remained weak by 1% near ₹1,50,250 as a stronger dollar and rising bond yields increased expectations of a possible Fed rate hike, raising the opportunity cost of holding non-yielding bullion.

Market participants are increasingly pricing in the impact of a tighter rate outlook, keeping pressure on gold. This week’s US non-farm payrolls and unemployment data will be crucial, as employment data remains one of the key inputs for the Federal Reserve’s policy decisions. The gold range can be seen between ₹148,000 and ₹152,500.

Meanwhile, Aamir Makda, Commodity & Currency Analyst, Technical Research at Choice Broking, said gold prices resumed with a gap-down and continued their decline for the sixth consecutive session.

Makda said the gold price in India has resumed gapped down today at 150,033, continued to decline for the 6th consecutive session. Price has resumed trading below 50, and the 100-DEMA level is placed at 151,681 and 150,179 respectively.

Gold fell on Wednesday to its lowest in more than three weeks, as the escalating Middle East conflict lifted oil prices and stoked inflation and rate-hike fears.

Also, traders are also focused on upcoming US employment data. Traders are pricing in a 67% chance of a rate hike at the Federal Reserve's policy meeting this month. Immediate support would be at 1,49,150 and a breakout of this level will boost downside momentum in the gold price in today’s session.

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 making any investment decisions.