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Gold and Silver Slide as Fed Rate Hike Fears Intensify
Gold and silver prices fell on Monday because investors expect US interest rates to rise.
Higher interest rates can make gold less attractive compared with investments that pay interest.
US inflation data was stronger than expected, increasing those rate-hike fears.
Traders now see about an 89% chance that the Federal Reserve will raise rates.
Oil prices also rose sharply, adding to concerns about inflation.
Analysts said a normal rate increase could push gold down another 1% to 2%.
A larger-than-expected increase could cause a much bigger fall.
If rates stay unchanged, gold could instead rise as investors buy it after the recent decline.
Prices may move sharply when the Federal Reserve announces its decision.
MCX gold October futures fell 1.19% to ₹1,50,973 per 10 grams, while December silver contracts dropped 1.70% to ₹231,000 per kilogram.
The Indian commodity market opened in the evening after being closed during the first half for Ganesh Chaturthi.
Gold prices declined globally after stronger-than-expected US inflation increased expectations of a Federal Reserve rate hike.
CME FedWatch showed an approximately 89% chance of a rate hike, up from 67% before the latest inflation data.
Analysts said gold could fall further after a 25-basis-point hike but could rebound if the Federal Reserve leaves rates unchanged.
- Who
- Gold and silver traders, the Federal Reserve, and commodity analysts including Vandana Bharti and Aamir Makda.
- What
- Gold and silver prices fell as markets increased expectations of a US interest-rate hike.
- Where
- MCX in India and international gold markets.
- When
- Monday, 14 September; the Federal Reserve decision was expected on Wednesday, 16 September.
- Why
- Stronger-than-expected US inflation increased expectations of higher US interest rates, while rising oil prices added to inflation concerns.
Further Rate Hike Scenario
No Hike or Dovish Scenario
Expected Fed decision
Further Rate Hike Scenario
A 25-basis-point increase could cause another 1% to 2% correction in gold, especially if the Federal Reserve signals that rates will remain higher for longer.
No Hike or Dovish Scenario
If the Federal Reserve leaves rates unchanged despite market expectations, short covering and fresh buying could trigger a strong gold rebound.
Market reaction
Further Rate Hike Scenario
A surprise 50-basis-point increase could strengthen the dollar and lead to aggressive profit-taking in gold; even a standard hike may initially pull gold toward $4,200-$4,250.
No Hike or Dovish Scenario
If rates rise but the Federal Reserve signals a pause in future hikes, gold could rally in a 'sell the rumour, buy the news' reaction; analysts also warned that a hawkish outlook could later reverse that move.
Key facts
- MCX gold price
- October futures fell 1.19% to ₹1,50,973 per 10 grams around 5:15 PM.
- MCX silver price
- December contracts fell 1.70% to ₹231,000 per kilogram around 5:15 PM.
- US gold futures
- December futures fell to $4,317.95 per troy ounce after declining more than 2% over two sessions.
- Rate-hike probability
- CME FedWatch indicated an approximately 89% chance of a Federal Reserve hike, versus 67% before the latest inflation data.
- US CPI
- August consumer prices rose 3.4% year-on-year and 0.3% month-on-month.
- Brent crude
- Brent crude rose nearly 4% to above $108 per barrel.
- Key event
- The Federal Reserve's interest-rate decision was due on 16 September.
Quotes
Vandana Bharti
Head of Commodity Research at SMC Global Securities
“If the Fed delivers a 25-bps rate hike, gold could see another 1–2% correction, particularly if the Fed signals that rates may remain higher for longer. The real shock, however, would be a surprise 50-bps hike. That could lead to a sharp spike in the dollar and trigger aggressive profit booking in gold, resulting in a much steeper correction.”
livemint.com
“If the Fed raises rates but also signals a pause in future hikes, gold could experience a sell the rumour, buy the news rally towards resistance levels. Conversely, if the Fed maintains rates and projects a hawkish stance, immediate reactions may lead to an initial spike in gold prices due to the lack of a rate increase.”
livemint.com
Sources
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