Gold prices have tumbled to a two-week low as of Friday, May 24, setting the stage for their biggest weekly decline in almost eight months. As of 03:41 GMT, spot gold was trading at $2,330.19 per ounce, after dipping to its lowest point since May 9 earlier in the session.
This sharp drop comes after gold hit a record high of $2,449.89 on Monday, marking a roughly 5% decline over the week. U.S. gold futures also saw a slight decrease of 0.3%, bringing them to $2,330.80.
In India, the trend was similar, with gold futures for June 5, 2024, trading at ₹71,461 per 10 grams on the Multi Commodity Exchange (MCX). This represented a slight dip of ₹116, or 0.16%, from the previous close of ₹71,577.
The recent decline in gold prices is largely attributed to diminishing expectations for an interest rate cut from the U.S. Federal Reserve. Minutes from May’s policy meeting revealed a hawkish stance, suggesting policymakers are not confident in cutting rates anytime soon. This sentiment has driven up Treasury yields and strengthened the dollar, impacting gold prices negatively. Ilya Spivak, head of global macro at Tastylive, explained, “The hawkish tone in the minutes from May’s Fed policy meeting highlighted policymakers’ reluctance to cut rates. This has increased Treasury yields and the dollar, and metals have reacted accordingly.”
Higher interest rates raise the opportunity cost of holding non-yielding assets like gold, putting downward pressure on its price. The Fed’s current policy includes maintaining its benchmark rate, but the recent minutes indicate possible further hikes. Traders are now doubtful that the Fed will lower rates more than once in 2024.
Despite these pressures, Chinese reserve buying continues to support gold prices. However, the pace has slowed, with the People’s Bank of China’s gold uptake decreasing to 9% year-on-year in April from 11% at the end of 2023. Nonetheless, the PBOC remains a significant source of demand.
In recent days, both gold and silver have seen a dramatic selloff. Rahul Kalantri, VP of Commodities at Mehta Equities, noted that the release of the Federal Open Market Committee (FOMC) meeting minutes triggered this drop. However, he also mentioned that strong demand from global central banks and ongoing geopolitical tensions could help stabilize prices at lower levels. Navneet Damani, Senior VP of Commodity Research at Motilal Oswal Financial Services, added, “Gold prices have retreated from record highs due to profit booking and uncertainty regarding Fed interest rate cuts and geopolitical tensions.”
Looking ahead, gold has support at $1,312-$1,288 per ounce and resistance at $1,345-$1,361 per ounce. In rupee terms, gold has support at ₹71,280-₹71,050 per 10 grams and resistance at ₹71,840-₹72,050 per 10 grams.
