Gold prices have experienced a sharp decline over the past week, driven by a strengthening US Dollar and rising concerns over inflation fueled by surging crude oil prices. In the Indian futures market (MCX), gold prices, which were hovering near the ₹1,60,000 mark at the onset of the US-Iran conflict, dropped to ₹1,44,825 per 10 grams last week. 90 per ounce. According to market experts, the complex economic environment, characterized by geopolitical friction and monetary tightening, continues to exert downward pressure on the precious metal.
Impact of US-Iran Conflict and Energy Markets
According to Sugandha Sachdeva, Founder of SS WealthStreet, the escalating conflict in West Asia has Importantly increased the global energy risk premium. Specifically, Israeli strikes on Iran’s ‘South Pars’ gas sector and retaliatory Iranian attacks on energy infrastructure in key Gulf nations have led to a spike in crude oil prices. This surge has triggered fears of ‘imported inflation’ globally. As energy costs rise, the market anticipates that central banks will prioritize inflation control over growth, which traditionally dampens the appeal of non-yielding assets like gold. The ongoing volatility in the Middle East remains a primary driver for the current market sentiment.
Hawkish Stance of Global Central Banks
Commodity expert Anuj Gupta noted that despite the ongoing US-Iran war, gold prices have remained stable or negative, while this is attributed to the market anticipating a firm response from global central banks to combat rising inflation. With crude oil prices expected to push global inflation higher, central banks may have little choice but to raise interest rates or maintain them at elevated levels. Last week, the US Federal Reserve, Bank of Japan, Bank of Canada, and Bank of England all signaled a hawkish stance. The Federal Reserve acknowledged that the impact of the conflict on inflation remains highly uncertain, leading to a recalibration of interest rate expectations through 2026.
Surge in US Dollar Index and Treasury Yields
The shift in interest rate expectations has Importantly bolstered the US Dollar Index, while 50 to above the 100 level in recent weeks. A stronger dollar, coupled with rising US Treasury yields, has placed substantial pressure on gold prices. Plus, a recent decline in global risk assets has triggered margin calls and liquidity shortages, leading to ‘long liquidation’ in the gold market. As investors sell off positions to cover losses elsewhere, the downward momentum in gold prices has intensified, even as geopolitical risks remain elevated.
Technical Correction and Market Liquidation
Jatin Trivedi, VP of Commodity and Currency Research at LKP Securities, stated that the ‘bears’ currently maintain a strong grip on the gold market. From a technical perspective, gold appears to be entering a phase of ‘corrective consolidation’ following the rally triggered by geopolitical tensions. Experts estimate the near-term trading range for gold on MCX to be between ₹1,40,000 and ₹1,47,000. Internationally, prices face stiff resistance in the $5,420 to $5,450 per ounce range. Failure to sustain levels above $5,280 could increase the risk of a further slide toward $4,250 per ounce. On the MCX, the ₹1,70,000 mark remains a major hurdle for any recovery.
Historical Comparison of Gold Price Movements
An analysis of the past 50 days reveals a significant retreat from gold's peak prices. On January 29, gold prices in the Indian futures market reached a record high of ₹1,93,096 per 10 grams. Since then, prices have corrected by approximately ₹48,604 per 10 grams. In the current month alone, gold has become cheaper by ₹17,612 per 10 grams. 25 lakh, it would represent a total decline of over ₹68,000 from the peak. This historical correction highlights the impact of shifting monetary policies and the strengthening dollar on the bullion market.