MCX Gold October futures may fall to Rs 50800 this week; all eyes on Fed Chair Powell’s speech at Jackson Hole

MCX Gold October futures may fall to Rs 50800 this week; all eyes on Fed Chair Powell’s speech at Jackson Hole

By Jigar Trivedi

MCX Gold October futures, having appreciated for four consecutive weeks, ended the previous week with a more than 2% drop. MCX Silver also declined by nearly 6% after Chinese economic data raised questions for the recovery in the region. Comex gold dropped to $1,749 an ounce, dropped by more than $50 or 2% in the week gone by, weighed down by the US Federal Reserve’s commitment to keep raising interest rates to bring down inflation. The US central bank’s hawkish stance has pushed up the dollar to a one-month high against major rivals, making gold more expensive for buyers holding other currencies.

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In the latest Fed commentary, St. Louis Fed Bank President James Bullard said he is considering support for a third straight 75-basis point rate hike in September and said he is not ready to say the economy has seen the worst of the inflation surge. On 18th August, holdings at the SPDR Gold ETF slipped to $985.8 tonnes from $ 1,005.5 tonnes as on 1st August, indicating more of the liquidation.

Comex silver fell to $19.2 per ounce, on track to close the week 8% lower and extending recent losses to a three-week low as the Federal Reserve’s pledge to curb inflation drove investors to favor the US dollar instead of non-interest-bearing bullion assets. The dollar Index hovered above 107.5, approaching a 20-year high of 108.5 hit in July, and was up about 2% so far this week, lifted by hawkish remarks from Federal Reserve officials indicating their commitment to further interest rate hikes. Traders will get more insights from Fed Chair Jerome Powell at next week’s annual Jackson Hole symposium.

The euro depreciated to below $1.01, approaching the key $1 dollar parity level as investors balance the ECB policy tightening path against the region’s economic outlook. The ECB is seen raising rates by 50 bps in September, following a similar move in July to tame soaring inflation but the region’s outlook is of concern due to the energy crisis triggered by reduced supplies from Russia.

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We don’t see any sort of a war premium to support the yellow metal in the near future, be it US – China, China – Taiwan or Russia – Ukraine. As mentioned above, this week, key focus will be on the Fed Chair Powell’s speech at Jackson Hole for more cues on the rate hike trajectory. We expect the dollar index to move higher to 109 mark and the Comex gold may decline to $1,710 – 1,700 an ounce. In that scenario, MCX Gold October is also likely to drop to Rs. 50,800 per 10 grams this week.

(Jigar M Trivedi, Senior Analyst Currency & Commodities, Reliance Securities Limited. Views expressed are the author’s own.)