Summary of this article
Gold futures fell 2.13 per cent on MCX, while silver declined 2.83 per cent
Higher US bond yields and rate hike expectations pressured precious metals
Investors will track US data, crude oil, dollar and geopolitical developments
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.
Both metals had also 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.
“The immediate pressure is coming from a renewed rally in Brent crude, which has revived inflation concerns and strengthened expectations of further Fed tightening,” said Kaynat Chainwala, AVP - Commodity Research, Kotak Securities.
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.
Chainwala said, “Higher energy prices, firm US economic data and hawkish Fed commentary have pushed the 10-year Treasury yield above 5.20 per cent and the dollar index above 101.”
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.
“The near-term outlook for gold and silver has turned bearish, with both metals vulnerable to further downside while oil prices, Treasury yields and the US dollar stay elevated,” said Chainawala.
“This is an unusually dense week for data,” Chainwala said. “The August core PCE reading on September 30 is the first real test of whether the recent hawkish repricing holds up against the inflation measure the Fed actually targets.”
The September payrolls report is due on Friday. Chainwala said a hot PCE reading followed by a second strong labour print “would strengthen expectations for an October hike, with CME FedWatch already assigning about a 70% probability, and would likely push both metals lower.”
On the other hand, “a soft reading on either release would be the first real pushback against the tightening narrative and could spark a rebound,” she said.
A heavy schedule of Fed speakers through the week will also be closely watched. Chainwala said the comments will show whether officials reinforce the recent repricing or sound more patient.
“Governor Waller's remarks deserve particular attention, given his record of looking at underlying inflation trends rather than headline prints,” she said.
Beyond US data and Fed commentary, crude oil remains a key factor for precious metals.
“Crude oil remains the key swing factor as progress towards reopening the Strait of Hormuz could ease inflation and rate concerns, while renewed escalation involving the Houthis or Gulf shipping could lift oil, inflation expectations and rate-hike bets simultaneously,” Chainwala said.
