The prospects of the US Federal Reserve continuing with its aggressive policy tightening stance dented the zero-yielding bullion’s appeal.

Gold futures on

were trading lower as they dropped 0.41 per cent or Rs 206 at Rs 50,208 per 10 grams. However, silver futures tanked 1.67 per cent or Rs 885 at Rs 52,266 per kg.

Even though gold is seen as a hedge against inflation, higher interest rates increase the opportunity cost of holding bullion and boost the dollar.

Rahul Kalantri, VP Commodities, Mehta Equities said bullion prices retreated sharply as gold hit five-week lows and silver prices slipped below two-year lows, weighed down by strengthening dollar index and bond yields.

Fundamentals remain negative for the metal, while bearish technical studies add to the weak structure, he added. “However, due to oversold conditions, some amount of consolidation could be seen in the yellow metal going ahead.”

Gold premiums in top consumer China jumped last week to their highest since October as a fall in global prices encouraged purchases, while demand cooled in India as buyers waited for a bigger price drop.

In the spot market, the highest purity gold was sold at Rs 51,188 per 10 grams while silver was priced at Rs 54,350 per kg on Tuesday, according to the Indian Bullion and Jewellers Association.

The spot prices of gold have remained below Rs 52,000 per 10 gram for almost two weeks, whereas silver has dropped about Rs 3,450 per kg in the same period under review.

After Fed reiteration on rate hike, the European Central Bank policymakers called for decisive and swift rate hikes on Tuesday to combat soaring inflation, ahead of next week’s policy meeting, said Ravi Singh, Vice President and Head of Research, ShareIndia.

“However, gold is seen as a hedge against inflation but rate hikes increase the holding cost of gold,” he added. “There is also a bigger-than-expected rebound in US consumer confidence in August which is again negative for gold trend.”

Trading Strategy
“We expect gold prices to trade sideways to down for the day with COMEX Spot gold support at $1,680 and resistance at $1,720 per ounce. MCX Gold October support lies at Rs 50100 and resistance at Rs 50,800 per 10 grams,” said Tapan Patel, Senior Analyst (Commodities),

Securities.

Global markets
Spot gold fell 0.2 per cent to $1,706.99 per ounce, as of 0100 GMT, after hitting its lowest level since July 21 at $1,704.94 earlier. US gold futures shed 0.5 per cent to $1,717.50.

Spot silver dropped 0.8 per cent to $17.83 per ounce after falling to a more than two-year low. Platinum fell 0.9 per cent to $838.24 and palladium was 0.6 per cent lower at $2,072.09.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)