Gold, Silver Prices Fall Up To 3% As Strong Dollar, Higher US Yields Weigh

Gold and silver prices fell sharply on September 28 as a stronger US dollar, rising crude oil prices and higher US bond yields weighed on precious metals.

On the Multi Commodity Exchange (MCX), October gold futures fell as much as 2.13 per cent, or Rs 3,214, to Rs 1,47,667 per 10 grams. December silver futures declined as much as 2.83 per cent, or Rs 6,661, to Rs 2,28,035 per kg.

In the international market, Comex gold fell 2.11 per cent to $4,197.40 an ounce, while silver declined 3.59 per cent to $62.47 an ounce.

The fall came after both metals ended lower last week.

Why Are Gold And Silver Prices Falling

Here are the reasons why gold and silver prices fell on September 28.

US Rate Hike Expectations

Expectations of another interest rate hike by the US Federal Reserve have increased as higher crude prices raise concerns about inflation.

Talks between the US and Iran have stalled, keeping geopolitical risks and oil prices elevated. In the morning session, Brent crude futures rose 2.52 per cent to $107 a barrel around 10 am, while West Texas Intermediate (WTI) crude was up 1.64 per cent at around $94.

Markets are now pricing in the possibility of another rate hike by the Federal Reserve in October.

The CME FedWatch Tool showed a 68.1 per cent probability of a 25 basis point rate hike. The Fed had already raised its benchmark interest rate by 25 basis points to a range of 3.75-4 per cent at its September meeting.

Higher interest rates can put pressure on gold and silver because these assets do not generate interest income.

Rising US Bond Yields Rise

The rise in US Treasury yields has added to the pressure on precious metals.

The US 10-year Treasury yield has climbed to 5.20 per cent, a level last seen about two decades ago. The 30-year Treasury yield has also risen to 5.51 per cent, close to levels last seen in 2004.

Higher bond yields increase the opportunity cost of holding gold and silver, particularly when investors can earn higher returns from interest-bearing assets.

Stronger US Dollar

The dollar has also strengthened. The US Dollar Index was around 101.39, its highest level in two months.

A stronger dollar makes dollar-denominated commodities more expensive for buyers using other currencies. This can reduce demand for gold and silver in global markets.

For Indian investors, the rupee is another factor to track. The Indian currency weakened by 25 paise to 96.14 against the US dollar in early trade on September 28.

A weaker rupee can partly cushion the fall in international gold prices for Indian investors because imported gold becomes more expensive in rupee terms.

What Should Gold And Silver Investors Watch

The focus this week will remain on US inflation and employment data, along with movements in crude oil, the dollar and US Treasury yields.

Any fresh change in expectations around the Federal Reserve's interest rate path could also influence gold and silver prices. Geopolitical developments, particularly those affecting oil supply and inflation, will remain important for precious metals.