Gold price drops 1%, silver rates crash over 2% on MCX as inflation fears, rate hike concerns revive

Gold and silver prices declined in the domestic futures market on Monday, 13 July, morning amid a jump in crude oil prices due to escalating tensions between the US and Iran, which drove the US dollar higher.

MCX gold August futures were 1.16% down at ₹1,41,820 per 10 grams, while MCX silver September futures were 2.34% down at ₹2,17,448 per kg around 9:10 am.Crude oil prices jumped 4%, boosting demand for the US dollar and driving it higher. The dollar index jumped nearly 0.30% to 101.22, weighing on gold prices.

An increase in the US dollar makes greenback-denominated gold more expensive for buyers in other currencies, creating demand fatigue.

Media reports suggested the US and Iran have exchanged heavy missile and drone assaults, with Tehran saying it had again closed the Strait of Hormuz, a vital waterway for global crude supply.

Tensions between the US and Iran have intensified with media reports claiming more than 10 projectiles hit Iran's Qeshm Island in Hormuz.

U.S. Central Command (CENTCOM) announced strikes against Iran on 12 July, hitting dozens of targets at multiple locations with precision munitions to “degrade Iran’s ability to continue attacking international shipping flowing through the Strait of Hormuz.”

Crude oil prices jumped 4%, reviving inflationary fears and expectations of aggressive monetary tightening by the US Federal Reserve and other major central banks globally.

Gold is considered a hedge against inflation, but it tends to decline during periods of monetary tightening because it is a non-yielding asset.

Along with the Middle East conflict, investors' focus this week will be on the Federal Reserve Chairman Kevin Warsh's first semiannual testimony before Congress, as well as June CPI, PPI and retail sales data, which will provide fresh clues on the US economy and the monetary policy outlook.

Manoj Kumar Jain of Prithvifinmart Commodity Research expects gold and silver prices to remain volatile this week due to volatility in crude oil prices and the dollar index, geopolitical tensions, and caution ahead of U.S. inflation data.

Jain said gold has support at $4,074 and $4,040, while resistance is at $4,144 and $4,180 per troy ounce, and silver has support at $59.10 and $57.70, while resistance is at $61.20 and $62.40 per troy ounce in today’s session.

MCX gold, as per Jain, has support at ₹1,42,400 and ₹1,41,100, and resistance is at ₹1,44,400 and ₹1,45,550, while silver has support at ₹2,20,000 and ₹2,16,600, and resistance is at ₹2,26,000 and ₹2,28,800.

"We suggest that long-term investors could accumulate gold and silver in a staggered way in this market's fall, but traders must wait for some stability in the markets," said Jain.

According to Ravi Singh, Chief Research Officer at Master Capital Services, the overall short-term trend remains cautious, and as long as gold trades below the 21-day EMA around ₹1,45,200, the preferred strategy remains sell on rise. Sustaining above this hurdle will be crucial to improve the near-term outlook, said Singh.

Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.