Gold & Silver Navigate a Stormy Week as Fed Rate Cut Hopes Diminish

New Delhi: Precious metals investors endured a rollercoaster ride this week as gold and silver prices were whipsawed by a potent mix of shifting macroeconomic signals, robust US economic data, and a resurgent US dollar. The primary driver behind the intense volatility was the rapid unwinding of market expectations for an interest rate cut by the US Federal Reserve in December.

Despite a sharp mid-week selloff, gold demonstrated remarkable resilience, managing to eke out a marginal weekly gain in the domestic spot market, while silver closed significantly lower.

Domestic Market: A Tale of Two Metals

According to data from the Indian Bullion and Jewellers Association (IBJA), the spot price of 24-carat gold in India closed at Rs 1,22,653 per 10 grams on Friday. This represented a net gain of Rs 221 for the week, compared to Monday’s opening price of Rs 1,22,432. However, this modest gain belied the turbulence beneath the surface. Prices swung between a weekly low of Rs 1,21,691 on Tuesday and a high of Rs 1,23,388 on Wednesday.

Silver faced a steeper decline. The white metal ended the week at Rs 1,51,129 per kilogram, registering a sharp weekly loss of Rs 3,804 from Monday’s level of Rs 1,54,933 per kg.

Futures Market and the Friday Plunge

The pressure on precious metals intensified towards the end of the week, particularly in the futures market. On the Multi-Commodity Exchange (MCX), gold futures contracts were firmly in negative territory on Friday. The key December futures contract dropped by Rs 1,067, or 0.87 per cent, to Rs 1,21,697 per 10 grams. Similarly, MCX Silver December contracts tumbled 2.17 per cent, or Rs 3,349, to Rs 1,50,802 per kg.

This late-week sell-off was directly triggered by a stronger-than-expected US jobs report for September, which indicated continued resilience in the labour market. A strong economy reduces the urgency for the Federal Reserve to lower interest rates, making non-yielding assets like gold less attractive.

Analyst Insights: Correction Within a Bullish Trend

Market experts viewed the week’s price action as a necessary correction within a larger positive trend, attributing the volatility to key global factors.

“Gold experienced a healthy correction this week but continues to maintain a strong bullish framework,” said Ponmudi R, CEO of Enrich Money. “COMEX gold closed at $4,079.5, while MCX gold settled around Rs 1,24,191, finding support precisely on the multi-month rising trendline. Similarly, silver witnessed a sharp yet healthy correction across both COMEX and MCX, but the broader uptrend remains firmly intact.”

Jateen Trivedi, VP Research Analyst at LKP Securities, highlighted the critical role of currency movements. “Gold traded highly volatile as Comex gold fell 1 per cent to $4,035, down by $41, while MCX gold rose Rs 300. This divergence was due to a sharp rupee depreciation of nearly 1 per cent from 88.70 to 89.60,” he explained. A weaker rupee makes dollar-denominated gold imports more expensive in India, cushioning the domestic price from steep international falls.

The Macroeconomic Backdrop: A Shifting Landscape

The week’s narrative for precious metals was dominated by three key factors:

1. Fading Fed Rate Cut Expectations: The market’s primary focus has shifted from if the Fed will cut rates to when. Strong economic data, especially the jobs report, has pushed back the timeline for the first rate cut, boosting the US dollar and Treasury yields. This creates a significant headwind for gold, which does not offer interest.

2. A Stronger US Dollar: The US Dollar Index (DXY) climbed to multi-month highs this week. Since gold is priced in US dollars globally, a stronger greenback makes it more expensive for holders of other currencies, dampening international demand.

3. Geopolitical Tensions: While easing trade tensions provided some relief, underlying geopolitical risks continue to offer a floor for gold prices. Investors still view the metal as a safe-haven asset during times of uncertainty.

Outlook: Range-Bound Volatility to Continue

Given the current macroeconomic crosscurrents, analysts expect the choppy trading to persist in the near term. Jateen Trivedi of LKP Securities expects gold to “remain volatile within a range of Rs 1,20,000-Rs 1,24,000.”

The immediate trajectory for gold and silver will hinge heavily on incoming US inflation data and the subsequent commentary from Federal Reserve officials, as markets continuously reassess the future path of American monetary policy.

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