Gold prices fell on the Multi-Commodity Exchange (MCX) on July 15, as investors booked profits after the weaker-than-expected U.S. inflation data. Although geopolitical tensions in the Middle East continue to underpin safe-haven demand, lower inflation in the United States has led to less demand for aggressive monetary tightening, which has led to lower domestic gold prices.
At 9:03 AM, the MCX Gold August Futures contract fell 0.58 percent to ₹1,41,370 per 10 grams. The MCX Silver September Futures were down 0.49 percent to ₹2,22,100 per kilogram, reflecting weakness in the precious metal market.
Softer US Inflation Weighs on Gold Prices.
The latest US inflation report showed that consumer prices were weaker than economists had expected, soothing financial markets in the wake of the data. The soft inflation data has calmed financial markets’ fears that the Fed should continue to aggressively raise interest rates.
Lower interest rate expectations are usually good news for gold, as the precious metal does not generate interest income. However, after a strong rally in the previous trading session, investors decided to book profits, and the price of MCX gold slipped a little.
Gold was mostly stable at $4,050 per ounce in the international market on Monday after a sharp 1.3 percent rise on Friday. The market reacted positively to the numbers from the U.S. Bureau of Labor Statistics that consumer prices declined in June for the first time in nearly six years.
The inflation report also drove gains in the US bond market as investors had been expecting the Fed to act more to help in the case of inflation cooling.
Middle East Tensions Continue to Aid
Despite the fall in domestic prices, geopolitical developments remain an important factor in the gold market.
The renewed tension between the U.S. and Iran has increased the level of uncertainty in global financial markets. In the same frame of mind, the rising crude oil prices have revived fears of inflationary pressures worldwide.
Higher oil prices will eventually drive inflation higher. Central banks will keep interest rates elevated for a longer period of time. Such a scenario usually creates challenges for gold, as higher interest rates increase the opportunity cost of holding non-yielding assets like precious metals.
But geopolitical uncertainty also drives demand for safer assets, and thus limits the downside in gold.
Silver Also Trades Lower
According to the MCX, the price of silver was in sync with gold. The September futures contract declined 0.49 percent to ₹2,22,100 per kg.
In fact, as with gold, silver is also impacted by global economic data, industrial demand, interest rate expectations, and geopolitical developments.
What Investors Should Watch
Market participants will closely monitor the US economy, employment data from the United States, inflation trends, and comments from Federal Reserve officials on inflation and future interest rate decisions. Gold and silver prices will be influenced by interest rate decisions to be made by either side.
In addition, developments in the Middle East, fluctuations in crude oil prices, movements in the US dollar, and global bond yields will remain the key drivers of precious metal prices in the coming weeks.
In the short run, there may be some volatility, but analysts feel that geopolitical uncertainty and the prospect of lower interest rates in the longer run could be a supportive factor for gold when economic conditions weaken further.
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