Comex gold was trading at close to two-year lows at about $1,670 per ounce, continuing to be pressured by a strong dollar and rising Treasury yields that reflected forecasts for tighter monetary policy and weakening global growth. According to ECB board member Isabel Schnabel, increased inflationary pressures in the eurozone are likely to be more persistent than anticipated. The European Central Bank is also projected to increase rates further. The appeal of non-yielding bullion is weakened by higher interest rates because they increase the opportunity cost of owning it.
The anticipation that the Fed will continue to battle inflation aggressively even at the risk of a recession helped keep the dollar index above 111 and close to a 20-year high of 111.81 reached on Thursday. The Fed defied market expectations that it would lighten policy in 2023 to better manage the economy by raising interest rates for the third consecutive day on Wednesday. The Fed forecast rates would peak at 4.6% next year with no reductions until 2024.
After the U.S. Federal Reserve hiked interest rates by another three-quarter of a percentage point and gave a clear indication that they will continue to rise well above the present level, the USDINR fell to an all-time low of 81.23. While inflation has remained above the upper end of the central bank’s 6% target this year, domestic portfolio outflows from India have also caused the rupee to decline. In order to stop the rupee from depreciating further, the RBI has sold dollars and increased borrowing costs by 140 basis points so far this year.
The precious metal plays an important position in the culture of the nation; it is a necessary component of many festivals and rituals, is seen as a store of value that is passed down through the generations, and is a mark of prosperity and the goddess Lakshmi. With the start of the holiday season, the second half of the year often sees an upsurge in demand for gold. From a high of over Rs. 55,450 per 10 grams in March 2022, MCX Gold fell to its present level of about Rs. 50,000 per 10 grams.