Gold futures on the Multi Commodity Exchange (MCX) declined sharply on Tuesday, tracking weak global cues. The contract for June delivery fell by Rs 1520, or 2.8%, to trade at Rs 1520 per 10 grams. Silver futures also witnessed a significant drop, with the July contract falling by Rs 1500, or 3.2%, to Rs 45,500 per kilogram.
Factors Behind the Decline
The decline in precious metals was driven by a strengthening US dollar and rising bond yields. The dollar index climbed to a two-week high, making gold more expensive for holders of other currencies. Meanwhile, the yield on the 10-year US Treasury note rose to 1.6%, reducing the appeal of non-yielding assets like gold.
Global Market Trends
On the international front, spot gold fell 1.5% to $1,780 per ounce, while US gold futures dropped 1.8% to $1,775. The sell-off was triggered by better-than-expected US economic data, which boosted expectations of an early tapering of stimulus measures by the Federal Reserve.
- Strong US Data: The US ISM manufacturing index rose to 61.2 in May, above estimates, indicating robust economic activity.
- Fed Speeches: Hawkish comments from Fed officials about potential rate hikes weighed on gold.
- ETF Outflows: Holdings in the world's largest gold-backed ETF, SPDR Gold Trust, fell by 0.3% on Monday.
Domestic Impact
In the domestic market, the drop in gold prices may provide some relief to consumers ahead of the wedding season. However, analysts advise caution due to volatility. The next support level for gold on MCX is seen at Rs 50,000 per 10 grams, while resistance is at Rs 52,000.
Silver, which is used in industrial applications, also faced pressure from weak demand outlook. The metal has declined over 10% from its recent highs.
Outlook
Market participants are now awaiting the US non-farm payrolls data due later this week, which could provide further direction. A strong jobs report could accelerate the timeline for Fed tapering, putting additional pressure on gold prices.
