Rate hike expectations pressure precious metals
Gold and silver prices are poised for a correction if the US Federal Reserve raises interest rates, with domestic gold potentially falling to ₹1.41 lakh per 10 grams and silver to ₹2.20 lakh per kilogram. The Fed's policy meeting is scheduled for September 15, and the case for a 0.25% rate hike has strengthened following recent jobs data.[S1]
Gold dipped to roughly $4,390 per ounce on Monday, with trading activity thin due to a U.S. holiday, following a jobs report that came in stronger than expected and pushed bond yields higher. Nonfarm payrolls rose by 162,000 in August, far exceeding the anticipated 56,000, while the unemployment rate remained steady at 4.1%.[S2]
Inflation data and market expectations
Market participants now assign nearly a 60% probability to a rate increase at the Fed's upcoming meeting, up from about 50% prior to Friday's employment data, as per the CME FedWatch Tool. Investors are looking ahead to PPI and CPI releases later this week for additional signals regarding the Fed's monetary policy direction.[S2]
Ajay Kedia, managing director of Kedia Commodities, remarked that if inflation figures surge this Friday, the Fed is likely to implement a rate hike in September. He pointed out that worries about economic health had previously restrained the Fed, but with robust job numbers, the central bank can now focus on curbing inflation.[S1]
Potential price levels and buying opportunities
Kedia projected that if the Fed hikes rates, gold could fall to $4,150 per ounce and silver to $58 levels. In the domestic market, gold could drop to ₹1.41 lakh from current ₹1.52 lakh levels, and silver from ₹2.50 lakh per kg to ₹2.20 lakh. He attributed the undervaluation partly to rupee appreciation over the past 15-20 days.[S1]
These price levels might offer attractive entry points for investors, as seasonal demand during the festive period typically supports gold and silver, and prices are expected to climb after the current correction. Kedia forecasts gold reaching $5,000 and silver hitting $90 by the end of the year.[S1]
Global factors and central bank buying
Inflation worries persist, with crude oil prices reaching a near three-month peak following exchanges of strikes between the U.S. and Iran on shipping over the weekend. Additionally, China continued its gold accumulation for a 22nd consecutive month in August, increasing its reserves to 76.73 million fine troy ounces.[S2]
