Why gold prices are down ₹4,000 in a week despite the Ukraine crisis
Premium- Gold prices today: From last week's high of ₹55,600, the precious metal is down about ₹4,000 per 10 gram
Gold prices in India corrected further today as a stronger rupee and softer global rates put pressure on the yellow metal. On MCX, gold futures were down 0.4% to ₹51,353 per 10 gram while silver fell 0.5% to ₹67,980 per kg. The yellow metal has fallen sharply from previous week highs of about ₹55,600 on hopes of a breakthrough in Ukraine-Russia talks. Equities have also rebounded, taking some sheen off the precious metal.
In global markets, gold was slightly lower at $1,917 per ounce, after touching its lowest since March 1 at $1,906 on Tuesday. Tonight, the US central bank is expected to announce its first interest rate hike in three years to tackle soaring inflation.
Higher US Treasury yields also put pressure on the yellow metal. Gold is highly sensitive to rising U.S. interest rates, and consequently higher yields on benchmark US 10-year Treasury notes, which increase the opportunity cost of holding non-yielding bullion.
The US dollar dipped, providing some support to greenback-priced bullion. Russian officials today said a neutral status for Ukraine with its own limited army, similar to Austria's, was being considered as a compromise in peace talks with Kyiv, while Ukraine spoke of outside powers guaranteeing its security.
Ukraine's President Volodymyr Zelenskiy said on Wednesday that peace talks were sounding more realistic, even as Russia's invasion continued, but more time was needed.
Among other precious metals, spot silver eased 0.5% to $24.74 per ounce, while platinum rose 2.7% to $1,012.55.
Carsten Menke of Julius Baer attributed three factors for the recent drop in gold prices: fall in energy prices and related prospects of a less pronounced pick-up in inflation, profit-taking after the recent run-up and Western world’s strong resistance to actively enter the war.
“While the war in Ukraine is still raging and no solution seems to be in sight, gold has given away a big share of its gains and trades almost $150 per ounce below its recent peak. The gold market thus seems to be very rationally pricing in the status quo of the war and its economic consequences: the West’s strong resistance to actively get involved and a less pronounced or less-than-feared pick-up in inflation," said Carsten Menke of Julius Baer.
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“Prices are well supported at today’s levels as safe-haven demand stays strong. Holdings of physically-backed gold products have added around 110 tonnes since the crisis escalated with Russia’s invasion. So, what has then driven gold prices down? First, the fall in energy prices and the related prospects of a less pronounced pick-up in inflation. Second, the Western world’s strong resistance to actively enter the war."
“Third, some profit-taking by more short-term, speculative traders. The key question for gold in times of geopolitical crises is always whether economic and financial market risks are on the rise or whether they are receding. For the moment, the gold market is reflecting the latter even though it is constantly assessing the situation, which remains highly in flux and highly uncertain. The gold market is thus taking a very rational stance on a war that affects us as humans primarily emotionally," he added. (With Agency Inputs)
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