Gold prices in India took a breather on Thursday, December 18, snapping a five-session winning streak. The retreat came as global investors pivoted back towards riskier assets following the release of key US economic data that showed inflation rising less than anticipated.
Market Movement: MCX Futures See Sharp Decline
The February gold futures contract on the Multi Commodity Exchange (MCX) opened slightly lower at ₹1,34,736 per 10 grams, compared to the previous close of ₹1,34,894. Selling pressure intensified through the session, dragging the price down to an intraday low of ₹1,33,728. This represented a significant single-day drop of ₹1,166 per 10 grams.
Meanwhile, silver prices also corrected from their record-breaking highs. The March silver futures contract on MCX witnessed a steep fall, dropping by ₹5,759 per kilogram to hit the day's low of ₹2,01,676.
Data Triggers: US Inflation Cools, Rate Cut Bets Firm
The primary catalyst for the shift in sentiment was the US inflation report for November. The data revealed that headline inflation eased to 2.7%, coming in below market forecasts. More importantly, the core inflation rate, which excludes volatile food and energy prices, fell to 2.6%. This marked its lowest level since April 2021 and offered relief after months of persistently high readings.
This cooling inflation reinforced market expectations that the US Federal Reserve could maintain its loose monetary policy stance and potentially implement interest rate cuts. The Fed has already reduced rates three times since September, bringing the benchmark funds rate to a target range of 3.5%–3.75%. The subsequent fall in the US dollar index to 98.3 against a basket of currencies further reflected this changed outlook.
Additional labor market data showed the US unemployment rate jumping sharply to 4.6% in November, the highest since September 2021, adding to the narrative of a slowing economy that may require continued policy support.
Investor Psychology: Profit Booking and Shifting Focus
Analysts noted that while the prospect of lower interest rates is traditionally bullish for non-yielding assets like gold, the metal's recent sharp rally prompted many investors to lock in gains. The renewed appetite for riskier assets, partly driven by optimism around artificial intelligence (AI) related trades, diverted funds away from safe-havens like bullion, at least temporarily.
Geopolitical tensions, however, continued to provide underlying support. Markets remained attentive to risks stemming from the US move to halt sanctioned Venezuelan oil shipments and Russian President Vladimir Putin's reaffirmation of firm territorial demands in Ukraine, despite intensified diplomatic efforts.
Disclaimer: Investors are advised to consult with certified experts before making any investment decisions.
