After rallying relentlessly over the last few weeks, gold prices are on a slippery path as the rupee has weakened against the dollar.

It is one of the few occasions when all the competing asset classes — equity, gold and rupee — are on a downslide on the back global uncertainty and weakening domestic economic growth.

Gold prices dipped ₹360 per 10 gram on Thursday to ₹74,900 , according to data from the Indian Bullion and Jewellers Association of India.

From a recent high of ₹79,557 per 10 gram on October 31, the precious metal has shed ₹4,657 on a decline in the rupee against the dollar. The rupee fell from 84.09 against the dollar during October-end to ₹84.37 on Thursday. As gold is dollar denominated metal, it falls when dollar gains against rupee.

Inflation fears

Gold has fallen in rupee terms even though it held steady in dollar terms. Spot gold prices on Comex were traded firm at $2,619 an ounce. Fears of inflation are shooting up again in the US with newly elected US President Donald Trump’s push to promote domestic manufacturing by levying high duty on imports. The inflationary situation in the US will push investors again to consider investment in gold as it is considered haven during economic uncertainty.

Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions, said domestic gold prices are expected to fall further if the dollar strengthens against rupee.

Globally, he said gold price broke the important support of $2,600 an ounce on stronger dollar and US treasury yields on the expectation of slower rate cuts in the Trump administration.

Trump’s plans

Trump’s plan to strike tariffs on imports, slash taxes, and deport millions of illegal immigrants is expected to raise costs in the US and drive up inflation. The US Fed will likely halt interest rate decreases to combat inflation, he said.

Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said gold saw minor gains as investors anticipate the release of US CPI data, which could offer some short-term support amid an overall weak trend.

The CPI’s downward trend towards the Federal Reserve’s 2 per cent target could pave the way for continued rate cuts, potentially supporting gold in the longer term. Currently, he said gold is finding support near the $2,600 range on COMEX, but a break below $2,590 could push gold prices lower towards $2,560, indicating potential downside risk.

According to the CME FedWatch tool, market-based indicators now predict a 31 per cent chance that the Fed will keep interest rates constant at their December meeting, down from a 100 per cent chance of at least a quarter per cent drop.

Moreover, gold is declining because of the competition from alternative assets, like Bitcoin, which is reaching a new all-time high of $90,000 due to predictions of laxer crypto regulation under the Trump administration equities are increasing as investors hope that reduced corporate taxes and looser regulations would improve business earnings, said Kothari.

Prices could weak further to $2,565 in gold over the next few days, he said.

Related Topics