Gold slides as hawkish Fed signals trigger profit booking
Gold prices traded lower on Monday, August 31, after Federal Reserve Chair Kevin Warsh signal a hawkish tone on inflation on Friday, prompting investors to book profits. COMEX gold futures fell 1.23% to $4,474.30 per ounce at 02:37 GMT, while silver declined 1.71% to $65.85 per ounce in early trading. On the domestic front, MCX gold futures for the October contract opened Monday's session 1.09% lower at Rs 1,54,239 per 10 grams, while MCX silver futures for the September contract dropped 1% to Rs 2,33,500 per kilogram at 09:21 IST.
Spot gold fell 0.4% to $4,433.19 an ounce on Monday, and US gold futures dropped 1.1% to $4,481.50, according to one report.
Fed repricing weighs on bullion
Manav Modi, commodities analyst at Motilal Oswal Financial Services, noted that gold prices fell nearly 3% on Friday, marking their sharpest decline in weeks, as a stronger US dollar and rising Treasury yields weighed on bullion. The decline followed Fed Chair Warsh's first Jackson Hole speech, which markets interpreted as hawkish. Governor Warsh reiterated that underlying inflation has not 'meaningfully improved' and stressed that restoring price stability remains the Fed's primary objective.
Traders significantly increased expectations of a September rate hike. The CME FedWatch probability of a 25 basis point hike in September jumped to around 57% from nearly 35% a day earlier. This repricing pushed US Treasury yields higher, with the 10-year yield climbing toward 4.7%, while the dollar posted its strongest weekly gain in several weeks.
Higher bond yields increase the opportunity cost of holding gold, which does not generate interest income. A stronger dollar also typically pressures bullion prices. The rupee opened lower by 10 paise at 95.48 per dollar, compared with Friday's close of 95.38.
Oil surge adds complexity
Crude oil has emerged as another important factor for precious metals. Brent crude crossed $90 a barrel after renewed US-Iran military action raised concerns about disruptions to global oil supplies. Brent settled at $90.49 a barrel on Monday, up 2.71%.
A sustained rise in oil prices can feed into inflation, which could make central banks more cautious about cutting interest rates and, in some circumstances, increase the possibility of tighter monetary policy. This creates a difficult environment for gold: geopolitical tensions support its safe-haven appeal, but higher yields and a stronger dollar work against it.
Analysts: buy on dips, watch support levels
Prithviraj Kothari, managing director of RiddiSiddhi Bullions, expects volatility to remain high and suggests a 'buy on dips' approach.
According to Nirpendra Yadav, senior analyst at Bonanza, gold finds support at Rs 1,53,500 per 10 grams, with resistance at Rs 1,61,000.
Modi said that despite the sharp correction, gold's broader support from the 'debasement trade' remains intact, with investors continuing to monitor concerns about fiscal sustainability and currency debasement. He also noted that geopolitical tensions remain elevated after reports of Iranian attacks on US forces in Jordan raised fears of further escalation.
Key factors to watch
The near-term direction of gold prices is likely to depend on three factors: US interest-rate expectations, oil prices, and economic data. The US jobs report due later this week will be particularly important for determining the Fed's next policy move. Market attention also shifts to upcoming US labor market and inflation data, along with releases from major economies.