Gold and silver exchange-traded funds (ETFs) came under sharp selling pressure on August 31, falling by as much as 4% as weakness in precious-metal prices spilled over into domestic markets. Hawkish comments from US Federal Reserve Chair Kevin Warsh strengthened expectations of an interest-rate hike, pushing bond yields higher and reducing the appeal of non-yielding assets such as gold and silver.
The decline came amid a combination of aggressive profit-taking, weak global cues, rising US bond yields and escalating tensions between the US and Iran, which have pushed energy prices higher and raised concerns about a fresh inflation flare-up.
Silver ETFs saw the steepest decline in morning trade. SBI Silver ETF fell 4.05% to ₹226.55, while Nippon India Silver ETF, or Silver BeES, dropped 4.06% to ₹221.07. Tata Silver ETF declined 3.98% to ₹22.44, while ICICI Prudential Silver ETF slipped 3.87% to ₹231.21.
Gold ETFs were also under pressure. ICICI Prudential Gold ETF fell 3.59% to ₹130.75, SBI Gold ETF declined 3.50% to ₹130.30 and Nippon India ETF Gold BeES dropped 3.48% to ₹126.30. Tata Gold ETF was down 3.19% at ₹14.87.
Why Are Gold and Silver Prices Falling?
The sell-off followed a sharp decline in global precious-metal prices after Warsh reiterated at the Federal Reserve’s annual Jackson Hole conference that policymakers remained focused on bringing inflation back to the central bank’s 2% target.
The remarks increased expectations of tighter US monetary policy. Markets are currently pricing in a 60% probability of a Fed rate hike in September, according to the CME FedWatch tool, while traders had earlier priced in a more than 50% chance of an increase at the central bank’s September meeting.
Higher interest rates and rising bond yields typically put pressure on gold and silver because the precious metals do not offer interest income.
Warsh’s comments pushed bond yields higher and weighed on gold prices. At the annual Jackson Hole symposium in Wyoming last Friday, he indicated that the Federal Reserve may need to raise interest rates if inflation fails to return to the 2% target.
“The Fed will have work to do if policymakers don’t get the confidence they need that inflation is heading down to 2%,” Warsh said on Friday at the Jackson Hole economic symposium, coming closer than he had previously to acknowledging that further rate hikes may be needed.
Inflation data also added to the concerns. The US Personal Consumption Expenditure (PCE) increased 3.7% year-on-year in July, indicating that inflation remained above the Fed’s 2% target for the 65th consecutive month.
Meanwhile, the US 10-year bond yield climbed to 4.74%, rising for four consecutive sessions. The 30-year bond yield stood at 5.22%, extending its gains for a third straight session.
Geopolitical tensions added another layer of uncertainty. US President Donald Trump posted an AI-generated video clip that he said showed Iran’s oil hub, Kharg Island, being blown to smithereens, hours after the two countries traded attacks for the first time since July. However, it was unclear whether the post was a threat directed at Kharg Island or whether an attack was actually taking place.
Meanwhile, crude oil prices also rose by more than 2%.
The continuing US-Iran conflict has also emerged as a negative factor for gold as it has lifted energy prices, increased demand for the US dollar and raised the risk of an inflation flare-up that could result in further interest-rate hikes.
Iran launched strikes early Monday after US forces struck Iranian rocket launchers on the Strait of Hormuz on Sunday, marking their first military action in a month.
Gold, Silver Prices Today
Gold slipped to its lowest level in nearly two weeks on Monday after Warsh’s comments raised concerns that higher interest rates may be needed to contain inflation. Escalating tensions in the Middle East further fuelled concerns about inflation.
Spot gold was down 0.3% at $4,439.31 per ounce at 0643 GMT, after touching its lowest level since August 19 earlier in the session. Gold prices had already fallen more than 3% on Friday.
US gold futures declined 0.9% to $4,489.50, while spot silver fell 0.5% to $66.68.
The weakness was also reflected in domestic commodity markets. Gold and silver prices crashed by up to 2% in morning trade on the Multi Commodity Exchange (MCX) on Monday, August 31, amid heavy profit-taking and weak global cues.
MCX gold October futures fell by more than ₹2,600, or almost 2%, to ₹1,53,640 per 10 grams. MCX silver September contracts plunged by over ₹4,200, or nearly 2%, to ₹2,32,501 per kg in early trade.
What should investors do?
As per Colin Shah, MD, Kama Jewelry, the correction should be viewed as a phase of consolidation rather than necessarily signalling a structural downturn.
“The week kicked off with gold under pressure, witnessing a sharp correction of nearly 2% on the MCX, influenced by aggressive profit-taking and soft global cues. While short-term technical selling is dominating the current price trajectory, this pullback can be actually treated as a healthy consolidation rather than a structural downturn.”
Shah said the fall in domestic prices could provide an opportunity for consumers as the festive season has already begun and the wedding buying season is approaching. He added that the correction could help consumers take advantage of the volatile price environment, while retailers may see it as an attractive opportunity to accelerate inventory restocking.
Internationally, Shah said the easing in bullion prices offers marginal relief to manufacturers through lower input costs and could improve price competitiveness in key overseas markets such as the US and GCC. This, he said, could provide a much-needed boost to steady pre-holiday order fulfilment.
“Overall, it remains vital to remain watchful of the headwinds and make real-time decisions at both a customer and business level.”
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
