Gold prices declined in India’s domestic futures market Thursday morning, reversing the previous upward momentum, as market participants booked profits following the release of U.S. inflation data. Despite this, global gold prices remained buoyant, with international markets seeing an extended rally. Experts have provided strategies for trading gold on the Multi Commodity Exchange (MCX) as investors continue to monitor the evolving economic landscape.
Profit Booking Pushes MCX Gold Lower
On Thursday, gold futures for February 2025 expiry on the Multi Commodity Exchange (MCX) fell by 0.25%, trading at ₹78,804 per 10 grams around 9:15 AM. This price drop followed a rally earlier in the week, largely fueled by global expectations of a rate cut by the U.S. Federal Reserve (Fed) and geopolitical tensions that continue to support gold as a safe-haven asset.
Despite the domestic decline, international gold prices remained elevated, marking their fifth consecutive day of gains. Gold prices in global markets hovered near a two-week peak as investors weighed the implications of U.S. inflation data that aligned with expectations and signaled a possible rate cut from the Federal Reserve.
U.S. Inflation Data and Market Reaction
The U.S. consumer price index (CPI) rose to 2.7% in November from the same month a year ago, a slight uptick from the 2.6% recorded in October. The increase was largely driven by higher food prices and inflationary pressures in other sectors. While the inflation figures met market expectations, they represented the steepest monthly gain in seven months, which could influence future monetary policy decisions by the U.S. central bank.
In response to the CPI report, market attention shifted to the U.S. Producer Price Index (PPI) data, set to be released later today. The PPI measures changes in the prices received by domestic producers for their goods and services and can provide further insights into inflationary pressures in the economy.
Market participants are also keenly focused on the upcoming meeting of the U.S. Federal Open Market Committee (FOMC), scheduled for December 17-18. Experts anticipate that the Federal Reserve will still proceed with its third rate cut of the year, despite the November inflation rise. This expectation is supported by the cooling labor market, which suggests that the Fed might prioritize economic stimulus over inflation concerns in the near term.
Dollar Strength and Its Impact on Gold
The recent strength of the U.S. dollar also exerted downward pressure on gold prices in India. As gold is traded globally in U.S. dollars, a rising dollar makes gold more expensive in other currencies, reducing demand and weighing on its price. The dollar index, which measures the greenback against a basket of other currencies, gained traction following the inflation report, contributing to gold’s price dip in the domestic market.
Gold, traditionally seen as a safe-haven investment during times of economic and geopolitical instability, faces a delicate balance between rising inflationary pressures and a strengthening U.S. dollar. While inflation may prompt the Federal Reserve to cut rates, the resulting increase in the value of the dollar can dampen demand for gold in non-dollar denominated markets.
Experts Share Strategies for Trading Gold on MCX
As gold prices show signs of short-term volatility, experts are offering strategies to navigate the fluctuations in the commodity’s price on the MCX. Manoj Kumar Jain, Director at Prithvifinmart Commodity Research, suggests buying gold on dips, particularly if prices approach ₹78,750. He recommends placing a stop loss at ₹78,440, with a target price of ₹79,400.
Jain also provided a strategy for silver, recommending a buy position at ₹95,200 with a stop loss at ₹94,400, and a target price of ₹96,800. His technical analysis suggests that gold is supported at $2,734-$2,722 per troy ounce, with resistance at $2,782-$2,804. In the Indian market, Jain expects gold to find support at ₹78,770-78,480, with resistance at ₹79,330-79,650. For silver, support is seen at ₹95,150-94,400, and resistance at ₹96,650-97,350.
Geopolitical Tensions and Central Bank Activity Bolster Gold Outlook
Despite the short-term decline in MCX gold prices, market sentiment remains broadly bullish, driven by several factors. Rahul Kalantri, Vice President of Commodities at Mehta Equities, emphasized that geopolitical tensions, central bank purchases, and the ongoing discussions surrounding Chinese economic stimulus continue to support the outlook for gold.
Kalantri noted that gold prices are edging closer to record highs, with ongoing demand from central banks and geopolitical instability underpinning the metal’s value. He explained that gold has support between $2,688 and $2,670 per troy ounce, with resistance seen at $2,722 and $2,738. In the Indian market, Kalantri identified support for gold between ₹78,780 and ₹78,540, with resistance at ₹79,290 and ₹79,500.
Silver, like gold, is also benefiting from these broader market dynamics. Kalantri placed silver’s support at $31.65-$31.47, with resistance at $32.20-$32.40. In INR terms, silver has support at ₹95,050-₹94,480, and resistance at ₹96,450-₹96,940.
Gold’s Long-Term Appeal Amid Economic Uncertainty
The combination of rising inflation in the U.S., potential rate cuts by the Federal Reserve, and increasing geopolitical risks continues to position gold as an attractive asset in the long term. As a zero-yielding asset, gold tends to perform well in periods of economic instability and low interest rates, making it an essential tool for diversifying portfolios in times of uncertainty.
The ongoing discussions surrounding inflationary pressures, labor market conditions, and central bank policies suggest that gold will likely maintain its appeal as a safe-haven investment. While short-term fluctuations are expected, particularly due to profit-taking and the strength of the U.S. dollar, the broader outlook for gold remains positive.
The Impact of Geopolitical and Economic Events on Gold Prices
Gold’s performance is closely tied to broader macroeconomic and geopolitical events. As inflationary pressures mount, central banks around the world have adopted dovish monetary policies, contributing to a low-interest-rate environment that benefits gold. Additionally, geopolitical tensions—such as ongoing trade conflicts and military unrest—continue to push investors toward the precious metal as a secure store of value.
In India, the recent rise in global gold prices, despite domestic declines, reflects these broader economic dynamics. As central banks, particularly in emerging markets, continue to accumulate gold reserves, the metal’s role as a hedge against economic uncertainty and currency devaluation remains crucial. Gold’s status as a safe-haven asset is reinforced during times of heightened geopolitical risks, such as in the Middle East and other conflict zones, further strengthening its investment appeal.
Conclusion: Navigating the Gold Market Amid Volatility
The recent decline in MCX gold prices, driven by profit-booking and a stronger U.S. dollar, highlights the volatility that often accompanies gold trading. However, the broader market fundamentals—such as rising inflation, expectations for further rate cuts by the U.S. Federal Reserve, and ongoing geopolitical tensions—suggest that gold’s long-term outlook remains positive.
Investors are advised to approach the market with caution, particularly in the short term, while remaining mindful of the broader economic and geopolitical landscape. With expert strategies suggesting buy positions on dips and strong technical support levels, gold continues to offer potential for profitable trading despite the volatility. As always, it remains an essential asset for those seeking stability and protection in uncertain economic times.
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