In a bid to fight the 40-year high US inflation, the Federal Reserve hiked interest rates by 75 basis points on Wednesday.
The decision, which was unanimous, took the target range for the benchmark federal funds rate from 3% to 3.25% – the highest level since before the 2008 financial crisis, and up from near zero at the start of this year.
After the third straight big rate hike, the hawkish US Fed signaled to reach 4.6% by 2023 until inflation retreated to 2% objective.
As the US Fed signaled additional monetary tightening down the path, the 10-year US Treasury yields jumped to a 15-year high of 4.1%.
US dollar index also raced to hit a fresh 20-year high of 111.4.
Moreover, even though gold is regarded as a hedge against inflation, rate hikes usually raise the cost of owning bullion, which pays no interest.
On MCX, prices of spot gold have fallen 8% from March peak to 49,491 rupees per 10 grams.
Globally, too, prices of spot gold have trimmed 18% to 1,664 dollars per ounce from over 2,000 dollars per ounce recorded in March.
Analysts believe that the demand for a safe-haven asset is shifting to bonds as yields climb to decade-high.
Going ahead, the pressure is likely to continue on the yellow metal until inflation peaks out.
Dilip Parmar, Research Analyst at HDFC Securities says, gold vulnerable until inflation peaks out. Support: $1,650, Resistance: $1,732. Weaker rupee, demand to limit downside. MCX Gold on a bearish side until it breaks Rs 52,500/10 gm.
Further, analysts also believe that though dollar appreciation would put pressure on gold prices globally, rupee’s depreciation may spark interest in domestic gold.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services says gold and dollar value inversely related. He is bearish on gold in the short-term, but believes rupee fall may spark gold value.
That said, according to the World Gold Council, an outright recessionary environment or stagflation could offset pressure from the yellow metal.
Further, it also expects increased trading volumes amid a pick-up in consumer demand to support the metal in the near-term.
As regards today, FII flows, rupee movement and crude oil prices will continue to guide domestic markets.
Besides, investors will also closely track the UK and Euro zone’s factory and services data.