Mumbai: Gold prices came under heavy selling pressure on Monday, September 28, with MCX gold futures falling by more than Rs 3,000 per 10 grams and slipping below the psychologically important Rs 1,50,000 level.
The decline came as international gold prices weakened amid rising crude oil prices, higher US Treasury yields and growing expectations that the US Federal Reserve may keep interest rates higher for longer. Renewed geopolitical uncertainty surrounding the US-Iran conflict also added to market volatility.
At around 11:14 am, the October gold futures contract on the Multi Commodity Exchange (MCX) was trading at Rs 1,47,989 per 10 grams, down 1.92% from its previous close of Rs 1,50,881. The contract had earlier fallen to Rs 1,47,667, representing a decline of more than Rs 3,200 from the previous close.
Other market reports showed the October contract subsequently trading around Rs 1,47,275 during midday, underlining the intensity of the intraday correction.
Why is gold falling today?
The primary pressure on gold came from a combination of higher oil prices, rising bond yields and expectations of tighter US monetary policy.
Spot gold fell more than 2% at one point, marking its sharpest daily decline since September 1, according to the supplied market data. International gold futures also fell towards a seven-week low, with Comex gold trading around $4,230 an ounce.
Gold does not generate interest income. Therefore, when investors expect interest rates and bond yields to rise, interest-bearing assets can become relatively more attractive compared with the non-yielding precious metal.
That dynamic has become particularly important as higher crude prices increase concerns about inflation.
Rising crude oil prices add pressure
Crude oil prices moved higher amid renewed uncertainty over the US-Iran conflict and concerns surrounding the Strait of Hormuz.
The rise in oil prices has increased expectations that inflation could remain elevated, potentially limiting the Federal Reserve’s ability to ease monetary policy and increasing the possibility of further rate hikes.
This creates an unfavourable environment for gold.
Higher energy prices can increase inflationary pressure, while expectations of higher interest rates can push bond yields higher. Both factors can reduce demand for gold in financial markets.
The relationship is particularly important at present because investors are closely watching developments in the Middle East and their potential impact on global energy supplies.
US Treasury yields and dollar weigh on gold
Higher US Treasury yields have added another layer of pressure.
Gold prices are sensitive to movements in US bond yields because investors compare the potential returns from holding interest-bearing assets with those from holding gold.
The US dollar has also strengthened, further weighing on gold prices. Since international gold is priced in dollars, a stronger US currency can make the metal more expensive for buyers using other currencies.
Recent market reports said the dollar had reached a two-month high as Treasury yields rose and expectations of further Federal Reserve tightening strengthened.
The combination of a stronger dollar and higher yields has therefore created a challenging backdrop for precious metals.
Geopolitical tensions add to market volatility
The latest decline may appear unusual because gold is traditionally viewed as a safe-haven asset during periods of geopolitical uncertainty.
However, the current market reaction has been driven by the interaction between geopolitical developments, crude oil prices, inflation expectations and monetary policy.
The renewed US-Iran tensions have pushed oil prices higher, raising concerns about inflation. If investors expect higher inflation to result in tighter monetary policy, the resulting rise in yields can outweigh safe-haven demand for gold.
Market participants are therefore watching developments around the Strait of Hormuz alongside US monetary policy expectations.
MCX gold technical outlook
The sharp correction has weakened the technical setup for MCX gold.
According to Ponmudi R, CEO of Enrich Money, the metal has broken below the Rs 1,50,000-Rs 1,50,700 zone, which had earlier acted as a support area and could now turn into resistance.
Gold has also moved below its 100-day exponential moving average (EMA), indicating increased technical weakness.
Ponmudi identified immediate resistance at Rs 1,50,000-Rs 1,50,700, followed by Rs 1,52,000-Rs 1,52,600.
On the downside, the immediate support is placed at Rs 1,47,300-Rs 1,48,000, followed by Rs 1,45,300-Rs 1,46,000, near the 200-day EMA.
The levels are technical reference points and do not represent guaranteed future price movements.
RSI signals weak momentum
The Relative Strength Index (RSI), another technical indicator used to assess momentum, has also weakened.
Ponmudi said the RSI stood at 37.48, below its signal line, indicating weak momentum.
A sustained move back above Rs 1,50,000 would be required to improve the technical setup, according to the analyst.
On the other hand, a decisive break below Rs 1,48,000 could expose MCX gold to the next support zone around Rs 1,46,000.
This makes the Rs 1,47,300-Rs 1,48,000 region an important area for traders watching the October futures contract.
Gold’s recent correction
The latest fall follows a period of considerable volatility in gold prices.
Domestic gold had remained significantly higher than year-ago levels despite intermittent corrections. Data from ET Markets showed the indicative 24-carat retail gold price at around Rs 1,48,930 per 10 grams on September 28, down 1.96% on the day.
The distinction between retail prices and MCX futures is important. Retail gold rates can differ from exchange-traded futures because of factors such as taxes, local premiums, purity and market conditions.
The sharper movement in MCX futures reflects the immediate reaction of financial-market participants to changes in global gold prices, currencies, yields and commodity markets.
What investors are watching next
The direction of gold prices in the near term is likely to remain sensitive to several global indicators.
These include:
- US Federal Reserve policy expectations: Further rate-hike expectations could continue to pressure non-yielding gold.
- US Treasury yields: A sustained rise in yields could reduce gold’s relative attractiveness.
- Dollar movement: Further appreciation in the US dollar could weigh on dollar-denominated gold.
- Crude oil prices: Higher oil prices could increase inflation concerns and affect interest-rate expectations.
- US-Iran developments: Any escalation or de-escalation could have a direct impact on oil prices and safe-haven demand.
- Technical levels: Traders will closely monitor the Rs 1,47,300-Rs 1,48,000 support zone and the Rs 1,50,000-Rs 1,50,700 resistance area.
The interaction between these factors will be crucial for the precious metal’s next move.
Gold and silver fall together
The weakness was not limited to gold. Silver also faced heavy selling pressure on Monday.
MCX silver futures fell by more than Rs 6,600 per kg in early trade, while international silver prices also declined sharply.
The simultaneous decline in gold and silver indicates that the broader precious-metals complex was under pressure from the stronger dollar, rising yields and changing expectations around US interest rates.
Conclusion
Gold prices have come under significant pressure on September 28, with MCX October futures falling more than Rs 3,000 per 10 grams and slipping below Rs 1,50,000.
The immediate drivers are higher crude oil prices, elevated US Treasury yields, a stronger dollar and expectations of further Federal Reserve tightening. Geopolitical uncertainty surrounding the US-Iran conflict has added to volatility by pushing oil prices higher.
From a technical perspective, the Rs 1,47,300-Rs 1,48,000 area is now an important support zone, while Rs 1,50,000-Rs 1,50,700 has emerged as an immediate resistance area, according to Enrich Money’s Ponmudi R.
For traders and investors, movements in crude oil, US yields, the dollar and developments in the Middle East are likely to remain key factors determining the direction of gold prices in the coming sessions.