Gold prices plunge over Rs 6,800 from record high; check key reasons behind this fall in yellow metal

Extending the losses to the fourth consecutive day, gold prices in India continued their downward movement on Thursday, mirroring the global prices. In the international market, gold prices have fallen to a more than two-month low as investors await a further response from major central banks as economic uncertainty looms. On MCX, gold October futures were trading Rs 175 or 0.35 per cent lower at Rs 49,333 per 10 gram, while the silver December futures lost Rs 1,806 or 3.09 per cent to rule at Rs 56,682 per kg. “The key driver for the gold price right now is the US dollar. Dollar’s renewed strength is linked to both rising cases worldwide and fading hopes of more stimulus from the US. US Dollar hedgers have also been most bullish in DX since 2012 and few times hedgers have been this bullish, we have seen noticeable rallies,” Bhavik Patel, Senior Technical Research Analyst at Tradebulls Securities, told Financial Express Online.

Patel also added that another reason for the strong US dollar is upcoming US elections. Since 1980, the US dollar has rallied 7 out of 10 times between the start of September and early December during the election year. So far this week, gold prices have fallen Rs 2,326 or 4.50 per cent, while silver has lost Rs 11,206 or 16.5 per cent. The level at which gold is trading today was last seen on July 21 this year. In the first week of August, gold hit a record high of Rs 56,191 per 10 gram while silver scaled to a fresh all-time high of Rs 77,949 per kg. Since then, gold and silver have been trading volatile. From the record highs, gold has lost over 12 per cent, while silver prices have climbed down over 27 per cent.

Besides, US Fed officials and Governor J. Powell shared the same view that monetary policy will need to remain accommodative for quite some time in order to support the economy. “Investors now await US weekly jobless claims data, if it is recorded higher than expectations it could support precious metal prices on lower levels,” said Navneet Damani, VP, Motilal Oswal Financial Services. Globally, spot gold fell 0.3 per cent to $1,858.08 per ounce. US gold futures were down 0.3 per cent to $1,862.30. SPDR holdings fell 0.87% to 1,267.14 tonnes on Wednesday. “Broader trends on COMEX could be in the range of $1825-1890 and on domestic front prices could hover in the range of Rs 49,000-49,880,” Damani added.

What do charts say for gold?

Patel said that gold fall has accelerated after it breached its 50-day moving average and now bears have gained control as they have managed to push prices below $1900 which was acting as significant support. Its recent swing low of $1863 is also breached so now we are looking at support around $1819. “Now that Rs 50000 psychological support is breached in MCX, we expect prices to test level between Rs 48700-48500 in near term,” he added. Silver cloud lining for gold in MCX is the strong US dollar which is making Indian rupee weak and thus providing some cushion to gold prices.

Gold has been under pressure this week as the US dollar is being seen as the preferred safe-haven asset amid renewed risk aversion in global financial markets. “Gold has penetrated the key $1900/oz level and may remain under pressure unless we see a substantial correction in US dollar,” said Ravindra Rao, VP- Head Commodity Research at Kotak Securities.