New Delhi: Gold prices have softened ahead of the festive rush, raising hopes of a better deal for jewellery buyers. But with global tensions and inflation concerns building, could prices fall further before Diwali?
On the Multi Commodity Exchange, gold was trading at Rs 1,47,300 per 10 grams, down 0.42% at the time of reporting. The festive season is usually a busy time for gold buyers in India, with many households purchasing jewellery for Dhanteras, Diwali, and weddings. But for those hoping for some relief in prices, gold has slipped as rising oil prices fuel inflation concerns and investors wait for clues on the US interest rate outlook.
In the international market, spot gold fell 0.3% to $4,128.92 per ounce, while US gold futures for December delivery dropped 0.3% to $4,148.50. The decline comes as higher oil prices raise concerns that inflation could remain elevated, making it harder for central banks to cut interest rates.
One of the key reasons behind the fall in gold prices is the rise in crude oil prices. Oil prices have climbed amid fresh geopolitical tensions in the Middle East, with Brent Crude hovering near a five-month high. Traders have factored in the risk of further disruption after Yemen's Iran-aligned Houthi group carried out attacks on Saudi energy, airport, and military targets.
Higher oil prices can push up transportation, manufacturing, and other costs, adding to inflationary pressure across economies. This could make central banks more cautious about lowering interest rates. For gold, this creates a challenge. Although the precious metal is often seen as a hedge against inflation, it does not pay interest. When interest rates remain high, investors may prefer assets that offer returns, reducing the appeal of holding gold.
Investors are also watching the US Federal Reserve's next policy meeting, scheduled for October 27-28, for clues about the direction of interest rates. Recent comments from Fed officials have suggested that there is little urgency to tighten monetary policy further, reducing expectations of an immediate rate hike at the October meeting.
However, traders continue to expect a possible rate increase in December, with market tools indicating a 92% chance of a hike. The Fed's decision could influence gold prices in the coming days. If the central bank keeps rates unchanged, gold could find some support. However, any indication that rates may remain higher for longer could put further pressure on the metal.
Gold prices could remain sensitive to movements in crude oil prices, geopolitical developments, and signals from the US Federal Reserve. Higher oil prices may keep inflation concerns alive, while expectations of higher interest rates could weigh on gold. On the other hand, if the Fed leaves rates unchanged and signals a less restrictive approach, the metal could regain some ground.
For Indian buyers planning festive purchases, short-term price movements may offer some relief, but the direction of gold prices remains uncertain. Domestic prices are also influenced by currency movements and other local market factors.