Excerpts:
On Gold and Silver Correction
Q. Last week, both metals experienced heavy profit taking. How much of this correction can be attributed to the rebound in the dollar index and the US-Japan trade development?
Anindya Banerjee: The relationship between bullion and the dollar index is strong. In addition, interest rate expectations from the Federal Reserve play an important role. Regarding the trade deals, the US recently signed important agreements with Japan and the European Union, and there has been a 90-day extension in the de-escalation between China and the US. These developments create a more stable policy environment, which has supported the dollar index and put downward pressure on gold and silver prices. This is the primary impact of the trade deals on the market as reflected in the dollar index movement.
Near-Term Outlook for Precious Metals
Q. With the Fed’s upcoming policy decision and the August 1st US tariff deadline, what is the near-term outlook for precious metals? Could we see a sharp reversal?
Anindya Banerjee: Since the crash in April and the unfolding of the Trump tariff drama, the market’s expectation for Fed rate cuts has changed significantly. In April, market participants anticipated a reduction of 75 to 100 basis points, but that has now been revised to just a 25-basis-point cut by year-end. This change has supported the dollar index. In the current meeting, no rate cut is expected for July, though pressure may build on the Fed from August onward, particularly as the Trump administration continues to push for more aggressive cuts. However, given the high fiscal deficit and robust asset markets across various asset classes—even with looming tariff-induced inflation, it appears unlikely for the Fed to initiate significant cuts soon.
For gold, currently in a sideways correction since September, the price range is roughly $3,250 to $3,450 per ounce. On MCX, a key support level is around ₹97,000–₹97,300. Should this support break, gold prices could fall toward $3,250 (or approximately ₹95,000 on MCX). Positional traders should be patient and ready for potential erosion in price toward the lower bound. Silver, meanwhile, might outperform gold in this environment, partly due to its alignment with a strong base metals market.
Impact of the Dollar Index and Emerging Market Currencies
Q. With the dollar index rebounding from three-week lows and showing high volatility, do you expect further strength? How might that affect gold prices and emerging market currencies like the rupee?
Anindya Banerjee: The US dollar index looks poised for a significant rebound, potentially pushing above 102. The decline of earlier expectations that the Fed would implement significant rate cuts, which once drove the dollar index down from nearly 109 to 97, has now reversed. Moreover, the market currently exhibits heavy short positions, suggesting the potential for a short squeeze if a triggering event occurs. Under these conditions, unless a major global risk-off episode further accelerates the dollar’s strength, we expect the index to remain largely sideways. This environment supports the notion of a sideways correction in gold prices.
USD-INR and Trade Developments
Q. The rupee has been weak lately, partly due to a domestic equity sell-off and stalled US-India trade talks. What is your view on the USD-INR for the coming week, especially in light of Fed policy risks?
Anindya Banerjee: The uncertainty around trade negotiations between India and the US is weighing on the rupee, compounded by limited capital inflows. While there have been some debt inflows, equity markets are still facing outflows, and FDI figures have declined. Furthermore, the RBI’s intervention by buying dollars helps support the lower side of the rupee. Presently, the technical range for the rupee is about 85–87 per USD. A breakout above 87 would be significant and could trigger an all-time high above 88. However, given that a trade deal with the US appears likely—reinforced by additional agreements such as the recent India-UK FTA, the rupee may find further support, keeping it within the current range.
Geopolitical Concerns and Commodity Markets
Q. There is significant tension between Thailand and Cambodia right now, along with other unresolved global trade issues. Could geopolitical concerns lend new support to gold and silver despite the recent corrections?
Anindya Banerjee: Geopolitical tensions could impact gold and silver prices, but only if they reach a significant magnitude, similar to conflicts involving Israel and Iran or Ukraine and Russia. In the case of Cambodia and Thailand, while the situation is unfortunate, it does not currently have a global impact strong enough to influence bullion prices significantly. Moreover, even when geopolitics play a role, such impacts tend to be short-lived, lasting one to two days before fading.
Broader Commodity Trends
Q. What can we expect this week for bullion and other commodities?
Anindya Banerjee: For bullion, silver appears attractive at its current levels (around ₹1,13,000–₹1,14,000) as medium-term players might consider accumulating longs. Gold should be viewed as a buy on dips, provided buyers are prepared for potential price drops to around ₹95,000 on MCX if key support breaks. On the broader commodity front, copper and aluminum seem promising, while oil is expected to remain range bound.
Disclaimer: Recommendations, suggestions, views and opinions given by the experts/brokerages do not represent the views of Economic Times.
