Gold prices extend decline on strong dollar, FED rate hike expectations; expect more of the same this week

Bullion prices extended their weekly decline as stronger dollar and FED rate hike expectations continued to hammer investment demand .

Gold prices extend decline on strong dollar, FED rate hike expectations; expect more of the same this week
Gold August futures at MCX fell by more than 1% at Rs 50107 per 10 gram as a weaker rupee capped the downside. (Image: REUTERS)

By Tapan Patel

Commodity prices traded lower with most of the commodities in the non-agro segment extending decline for another week on weaker demand and a stronger dollar. Bullion prices traded down on market expectations over aggressive FED in July meeting following records inflation data. Base metals traded weak on disappointing data from China and lower demand. Crude oil prices traded down on slowdown fears and higher US inventories.

Gold prices traded lower with spot gold prices at COMEX fell by 1.97% to $1708 per ounce for the week. Gold August futures at MCX fell by more than 1% at Rs 50107 per 10 gram as a weaker rupee capped the downside. The spot rupee hit all-time lows and fell by 0.79% at 79.88 against the dollar for the week. Gold ETF holdings continued outflows as holdings at SPDR Gold Shares fell to 1014 tonnes from the previous week’s 1023 tonnes. The CFTC data showed that money managers have decreased their net long positions in gold by 24058 lots in last week to the lowest in three years. 

Silver prices traded lower with spot silver prices at COMEX fell by 3.12% to $18.71 per ounce for the week. MCX Silver September futures fell by 2.70% at Rs 55587 per KG for the week. Silver prices witnessed heavy selling during the week as investors rushed out of no interest yielding precious metals to the fixed income assets.  The lower demand for industrial metals on China COIVD worries has also added pressure to the prices. The CFTC data showed that money managers have increased their short positions in silver by 1633 lots to the three year high.

Bullion prices extended their weekly decline as stronger dollar and FED rate hike expectations continued to hammer investment demand in the precious metals giving no respite to the investors. Bullion prices witnessed sell off during the week after red hot inflation spurred buying in dollar and growing market expectations that US Fed will hike interest rates by 1 per cent in the upcoming FOMC meeting. The US CPI rose to 9.10% in June on year on year basis against 8.60% in May. The dollar index held a multi-decade high on weaker global currencies on geopolitical and slowdown risk. The Euro fell below the parity with dollar on surging inflation and recession worries with higher energy costs. The dollar index ended nearly 1% up at 108.06 while the 10-year US treasury yields traded below 3% and ended at 2.92% for the week. Bullion prices may continue to trade under pressure after initial rebound as a stronger dollar and Fed speculation will weigh on investment demand for the short term.

We expect gold prices to trade sideways to down in the coming week with COMEX spot gold resistance at $1740 per ounce and support at $1680 per ounce. At MCX, Gold August prices have near-term resistance at Rs 50700 per 10 grams and support at Rs 49500 per 10 gram. COMEX Spot silver has near-term resistance at $19.70 per ounce with support at $17.90 per ounce. MCX Silver September has important resistance at Rs 59800 per KG and support at Rs 56000 per KG.

(Tapan Patel is a Senior Analyst (Commodities) at HDFC securities. Views expressed are the author’s own. Please consult your financial advisor before investing)

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