Gold futures slid nearly 2% on Friday, extending losses as a robust dollar continued to dampen demand for the precious metal. The decline comes amid a broader rally in the U.S. currency, which has been buoyed by expectations of tighter monetary policy and a resilient economy.
Gold Futures Decline
The most active gold contract on the Multi Commodity Exchange (MCX) settled at ₹71,000 per 10 grams, down ₹1,400 or 1.93% from the previous close. On the Comex, gold futures for December delivery fell 1.8% to $2,650 per ounce.
The dollar index, which measures the greenback against a basket of six major currencies, surged to a fresh two-year high, making gold more expensive for holders of other currencies. This weighed heavily on bullion demand, as investors shifted towards the dollar as a safe haven.
Impact of Strong Dollar
According to analysts, the dollar rally has been the primary driver behind the drop in gold prices. The U.S. currency has strengthened on expectations that the Federal Reserve will maintain higher interest rates for longer to combat inflation. This has reduced the appeal of gold, which does not yield interest.
Meanwhile, silver futures also declined, falling 2.5% to ₹85,000 per kilogram on the MCX. Other precious metals like platinum and palladium also traded lower, reflecting the broad-based selling pressure in the commodity complex.
Market Outlook
Market participants are now awaiting the release of U.S. employment data later in the session for further cues on the trajectory of monetary policy. A strong jobs report could reinforce the case for higher interest rates, potentially putting additional pressure on gold prices.
However, some analysts believe that gold may find support at lower levels due to geopolitical tensions and central bank buying. The ongoing conflict in Ukraine and rising tensions in the Middle East have increased safe-haven demand, but the dollar's strength has overshadowed these factors.
On the data front, the U.S. Labor Department reported that initial jobless claims fell more than expected last week, indicating a tight labor market. This has further fueled expectations of aggressive rate hikes by the Fed.
Technical Levels
From a technical perspective, gold is approaching a key support level at $2,600 per ounce. A break below this level could trigger further selling, while resistance is seen at $2,700 per ounce. Traders are advised to watch for any signs of a reversal in the dollar index to gauge the next move in bullion.
In the domestic market, gold prices are expected to remain under pressure in the near term, with the rupee also weakening against the dollar. However, the onset of the festive season in India could provide some support to physical demand.
