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A mixed trend for precious metals is being seen in the international commodity markets. On one hand, there is mild pressure on gold prices due to strengthening in US Treasury Yields and caution on interest rates, while on the other hand, silver is trading firmly near the important level of $67.30 per ounce on the basis of strong industrial demand. Investors are keeping a close eye on the separate movements of both the metals amid the policy stance of the Federal Reserve and global economic indicators.
Gold prices traditionally have an inverse relationship with US government bond yields and the dollar index. When US Treasury yields rise, the opportunity cost for investors of holding non-yielding assets such as gold in their portfolios increases.
With US yields hovering near upper levels in recent sessions, institutional investors have preferred profit-booking rather than aggressive buying in gold. Due to this, gold has been seen slipping slightly from its high levels and trading in the range of consolidation in the international market. Market participants are now waiting for key US economic data, such as inflation (CPI) and upcoming policy statements, which will provide clarity on when the central bank will take the next step in cutting rates.
Unlike gold, the reason for the strength of silver is not only its being a precious metal, but its increasing use as an ‘industrial metal’. Globally, silver demand for green energy transition, solar panels (photovoltaic cells), electric vehicles (EVs) and semiconductor electronics continues to remain at record levels.
On the supply side, due to limited mining production and strong consumption from green technology, silver is continuously getting buying support at lower levels. Even on technical charts, silver is challenging the resistance level of $67.30 by crossing the support zone of $66.50. Analysts believe that if silver closes decisively by crossing the range of $67.50 to $68.00, then it may see a new breakout.
The direct impact of this move in the international market is also visible on the Indian Futures Market (MCX) and the domestic retail bullion market:
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Gold (MCX Gold): Due to the pressure of dollar-rupee exchange rate and global yields, gold is also being traded in a limited range in the Indian market. However, the retail demand for the upcoming festive and wedding season is keeping the decline limited to a limited extent.
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Silver (MCX Silver): Due to the strength of silver above $67 at the international level, the shine of silver remains intact in the domestic market also. Import costs and demand from industrial buyers are providing strong support.
According to market experts, traders and investors should exercise caution at present:
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Short-Term Traders: Unless the US Federal Reserve’s position regarding interest rates is completely clear, gold may remain in a limited range (range-bound trading) instead of a big one-sided jump.
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Level for silver: Technical analysts believe that the $66.00 level will act as immediate strong support for silver. As long as it remains above this level, short-term momentum will remain in favor of the bulls.
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Long Term Investor: For long-term portfolios, any sharp decline in gold can be considered an opportunity to buy on dips in a phased manner (SIP/Buy on Dips), as the continued buying of gold by central banks and geopolitical risks make it the most powerful hedge instrument in the long run.