Key Takeaways:
Silver prices tumbled Rs 5,600 per kilogram on the MCX on Wednesday, the biggest drop in three months, as rising oil prices reshaped inflation expectations and delayed bets on Federal Reserve rate cuts.
The selloff came as fading hopes for a US-Iran peace deal fueled inflation worries and strengthened expectations of sustained high interest rates from the Federal Reserve, according to Goodreturns data. MCX silver futures posted a significant decline, while gold futures also fell, the data showed.
Gold prices fell Rs 1,300 per 10 grams alongside silver, with 24-carat gold in India settling at Rs 1,42,590 per 10 grams and 22-carat gold at Rs 1,32,290, according to Goodreturns. The declines came despite recent soft CPI, PPI and jobs data that had initially fueled expectations of a September rate cut.
The precious metals selloff was broad-based, with silver bearing the brunt of the decline. Silver's higher industrial demand exposure makes it more sensitive to rate-hike expectations than gold, as tighter monetary policy typically slows manufacturing activity. COMEX silver futures tracked the MCX move lower, extending losses from the previous session.
Gold has already been under pressure in recent weeks. The 22-carat gold price in India fell 9.6% in June alone, sliding from Rs 14,481 per gram at the start of the month to Rs 13,085 by month-end, according to Goodreturns data. The weekly trend for the period ending July 16 showed 22-carat gold flat at Rs 13,059 per gram, reflecting a pause after the June selloff.
The divergence between soft inflation data and rising oil prices creates a dilemma for the Fed, as higher energy costs threaten to keep headline inflation elevated even as core measures moderate. The US dollar strengthened on the shifting rate outlook, adding further pressure on dollar-denominated commodities including silver and gold.
Silver at current levels remains down from its June highs, with the metal tracking the broader precious metals complex lower. Compared to gold, silver has underperformed year-to-date, reflecting its dual role as both a monetary and industrial metal. The gold-to-silver ratio has widened as a result, signaling silver's relative weakness.
Silver and gold face continued selling pressure if crude prices remain elevated, with the Fed chair's upcoming speech seen as the next trigger for direction. Analysts have advised investors to wait for clarity on the rate path before initiating new positions in the volatile precious metals market.
This article is for informational purposes only and does not constitute investment advice.
