Gold prices took different paths on Tuesday, slipping on domestic futures exchanges while continuing to climb in international markets. The divergence followed a shift in expectations that the US Federal Reserve may not raise interest rates as aggressively as previously thought.
On the Multi Commodity Exchange (MCX), the most-traded October gold contract fell 0.6 per cent to settle at Rs 1,54,995 per 10 grams. December and February contracts also declined, by over 0.5 per cent and 0.7 per cent respectively. Meanwhile, international spot gold extended its recent gains, lifted by a softer outlook for US monetary policy.
Why MCX and global gold moved apart
The divergence between domestic and international gold prices is not unusual. Gold is quoted globally in US dollars per troy ounce, while MCX futures are priced in Indian rupees per 10 grams. Changes in the rupee-dollar exchange rate can cause the two benchmarks to move differently on a given day. A stronger rupee, for example, can pull down the rupee price of gold even if the dollar price stays firm.
The deeper driver behind Tuesday's global rally was a growing conviction that the Federal Reserve might be done raising rates, or at least that the pace of future increases will slow. Lower interest rates reduce the opportunity cost of holding gold, which pays no yield, and historically tend to support bullion prices.
Fed minutes in focus
Investors are now turning to the Federal Reserve's latest meeting minutes, due for release later this week. The document will offer a detailed account of the central bank's discussions and could provide clues about the path of interest rates. Markets will be parsing the language for any shift in the Fed's tone, particularly with respect to inflation and employment.
The minutes are expected to be the next major catalyst for gold prices. A dovish read could push international gold further, while a hawkish surprise might reverse recent gains. For Indian buyers, any change in international prices will be filtered through currency movements before it appears on the MCX screen.
Key takeaways
- October gold futures on MCX fell 0.6% to Rs 1,54,995 per 10 grams on Tuesday.
- December and February contracts also declined, by over 0.5% and 0.7% respectively.
- International gold prices extended gains as expectations of a US Federal Reserve rate hike eased.
- Investors await the Fed's latest meeting minutes for further policy direction.
Common questions
Why did MCX gold prices fall while global gold rose?
Domestic gold futures are priced in Indian rupees and can diverge from international dollar prices based on changes in the USD/INR exchange rate and local market conditions. Even when dollar-denominated gold rises, a strengthening rupee can pull down the rupee price on the MCX.
What are the Fed minutes and why do they matter for gold?
The Federal Reserve releases minutes of its policy meetings three weeks after each decision. They contain detailed discussion on economic conditions, inflation, and the likely path of interest rates. Because gold is sensitive to real interest rates, any hints about future Fed policy can move prices. Traders watch the minutes closely for clues on the pace and timing of rate changes.
To track the latest price movements across domestic and international markets, keep an eye on the live gold price.