Summary of this article
Gold falls after profit booking following a sharp four-session rally
Rising oil prices revive inflation fears ahead of Fed policy meeting
Higher Treasury yields pressure gold despite a weaker US dollar
Gold prices retreated on July 23 after hitting a two-week high in the previous session as rising crude oil prices prompted investors to book profits. The focus has also shifted to the US Federal Reserve's policy meeting next week, with markets looking for signals on the future direction of interest rates.
On the Multi Commodity Exchange (MCX), gold futures fell 1.45 per cent, or Rs 2,119, to Rs 1,43,561 per 10 grams.
The weakness came despite continued geopolitical tensions in West Asia. Crude oil prices climbed to their highest level in more than six weeks after the US carried out fresh strikes on Iran and Yemen's Houthis targeted oil tankers in the Red Sea. Higher oil prices have revived concerns that inflation could remain elevated, reducing expectations of near-term monetary easing.
Jateen Trivedi, vice president, research analyst - commodity and currency at LKP Securities, said the decline in gold was largely driven by profit booking after a strong rally.
"Gold prices witnessed profit booking after a sharp 4 per cent rally over the past three to four trading sessions," he said. "Despite the correction, the broader trend remains constructive, with the market now awaiting fresh triggers from crude oil prices, the US dollar index and the US Federal Reserve's policy decision on 29 July."
Meanwhile, the US dollar index slipped around 0.12 per cent, making dollar-priced gold slightly cheaper for buyers using other currencies. However, that support was offset by a rise in US Treasury yields.
The yield on the two-year US Treasury note climbed to 4.33 per cent, a 17-month high, as investors worried that higher oil prices could push inflation higher again and strengthen the case for another rate hike by the Federal Reserve.
The US central bank is widely expected to leave interest rates unchanged at its policy meeting next week. Even so, futures market pricing suggests investors continue to expect at least one rate hike before the end of the year. According to the Chicago Mercantile Exchange’s (CME) FedWatch Tool, traders are assigning a 53.60 per cent probability of a 25 basis point rate hike in September, and a 24.70 per cent probability of a 50 basis point rate hike.
Gold does not pay interest, which means its appeal typically weakens when interest rates and bond yields move higher, as investors shift towards interest-bearing assets.
