India’s festive season typically sees strong demand for gold, as households buy jewellery for Dhanteras, Diwali and weddings. However, buyers hoping for lower prices have seen gold decline amid rising oil prices, growing inflation concerns and uncertainty over the US interest rate outlook.
On the Multi Commodity Exchange (MCX), gold was trading at Rs 1,47,300 per 10 grams, down 0.42% at the time of writing. In international markets, spot gold fell 0.3% to $4,128.92 per ounce, while US gold futures for December delivery declined 0.3% to $4,148.50.
The drop comes as rising oil prices fuel concerns that inflation could remain high, potentially making central banks more reluctant to reduce interest rates.
WHY ARE GOLD PRICES FALLING?
The rise in crude oil prices is one of the main factors behind gold’s decline. Oil prices have increased amid renewed geopolitical tensions in the Middle East, with Brent crude trading close to a five-month high.
Market participants have also factored in the possibility of further supply disruptions after Yemen’s Iran-aligned Houthi group said on Monday that it had attacked Saudi energy, airport and military targets.
Expensive oil can increase transportation, manufacturing and other costs, adding to inflationary pressures across economies. This could prompt central banks to exercise greater caution before cutting interest rates.
This presents a challenge for gold. While the precious metal is often considered a hedge against inflation, it does not generate interest. When interest rates stay elevated, investors may favour assets that provide returns, making gold less attractive.
ALL EYES ON THE US FEDERAL RESERVE
Investors are closely monitoring the US Federal Reserve’s upcoming policy meeting, scheduled for October 27-28, for indications of its future interest rate decisions.
Recent remarks by Fed officials suggest there is little urgency to tighten monetary policy further, lowering expectations of an immediate rate hike at the October meeting.
However, traders continue to anticipate a possible increase in December. According to the data cited in the report, the CME FedWatch Tool showed a 92% probability of a rate hike at that meeting.
The Fed’s decision could influence gold prices in the coming days. If rates remain unchanged, gold may receive some support. However, indications that borrowing costs could stay high for an extended period may put additional pressure on prices.
WHAT COULD HAPPEN TO GOLD PRICES NEXT?
Gold prices are likely to remain sensitive to changes in crude oil prices, geopolitical developments and signals from the US Federal Reserve.
Rising oil prices could sustain inflation concerns, while expectations of higher interest rates may weigh on the precious metal. Conversely, if the Fed keeps rates unchanged and signals a less restrictive policy stance, gold could recover some of its recent losses.
For Indian consumers planning festive purchases, short-term price declines could provide some relief. However, the future direction of gold prices remains uncertain, as domestic rates are also affected by currency fluctuations and other local market factors.
