Gold Prices Plunge Amid Hawkish US Fed Stance

Gold Prices Plunge Amid Hawkish US Fed Stance

Sharp Decline in Gold Prices

Due to a hawkish stance from the US Federal Reserve on interest rates, gold prices saw a significant drop this morning. This is a notable event considering the historical context of gold price fluctuations. On the Multi Commodity Exchange (MCX), gold futures for August 2024 opened lower at ₹71,475 per 10 grams and quickly fell to an intraday low of ₹71,401. In the international market, spot gold hovers around $2,315 per ounce, while Comex gold trades at about $2,330 per troy ounce.

Impact of US Fed Decisions

Commodity market experts attribute the drop in gold prices to the pivotal decisions of the US Federal Reserve. Although the Fed has kept interest rates steady, its outlook for 2024 is more hawkish. Initially, the Fed had projected three rate cuts for the year, but now it’s down to just one. This revision has significantly boosted US dollar rates and Treasury yields, putting immense pressure on gold prices.

Expert Insights

Anuj Gupta, a seasoned expert and the Head of Commodity & Currency at HDFC Securities, provides a clear insight into the situation, stating, “The decline in gold prices today is directly linked to the US Federal Reserve’s meeting outcome. The Fed revised its plan from three rate cuts to just one for 2024. This change has increased US dollar rates and Treasury yields, leading to a fall in gold prices.” Understanding this connection, as explained by such a knowledgeable source, is critical to grasping the market dynamics.

Market Reactions

Dhawal Ghanshyam Dhanani, Fund Manager at SAMCO Mutual Fund, noted that the US Fed kept the benchmark rate in the 5.25-5.50% target range for the sixth consecutive meeting, unlike the European Central Bank and others like Switzerland, Sweden, and Canada, which have recently cut rates. Initially, the market anticipated 1-2 rate cuts by December, but the Fed’s March projection suggested 2-3 cuts. However, the Fed’s recent statement hints at just one cut this year, emphasizing a ‘higher for more extended rate environment, a term used to describe a prolonged period of low interest rates.

Broader Market Implications

Kotak Securities pointed out that Federal Reserve officials have tempered their expectations for interest-rate cuts this year, a term used to describe a reduction in the cost of borrowing, with Chair Jerome Powell suggesting a conservative approach. Following the Fed’s announcement, Comex gold dropped 1% after three days of gains, and LME base metals partially reversed their previous day’s advances. The Fed’s ‘dot plot’ revealed that four policymakers foresee no cuts this year, seven anticipate one cut, and eight expect two cuts.

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Key Levels to Watch

For those tracking the gold market, it’s crucial to note the provided critical levels. On the MCX, gold has immediate support at ₹70,800, with a resistance hurdle at ₹72,000 per 10 grams. Internationally, spot gold has support at $2,300, with crucial support at $2,280 per ounce. Resistance levels are at $2,330 and a significant hurdle at $2,350. These levels, carefully identified, can be your guide to making informed decisions in the gold market.