Gold and silver prices: 24-carat gold rate falls 1.4% this week amid strong US dollar and Fed's hawkish stance

Gold and silver prices declined for the week ended December 20, both in the domestic and international markets, after the US Federal Reserve announced its policy decision.

Trade was sluggish in both the yellow and white metals for multiple reasons. Let’s examine some key factors that drove these prices during the week.

Domestic prices

This week, gold prices in major Indian cities dropped for four of the past six sessions. On Friday, December 20, 24-carat gold stood at ₹76,800 per 10 gm, which was lower by ₹1,090, or 1.39%, compared to the closing level of ₹77,890 per 10 gm on Sunday, December 15.

Silver prices dropped to ₹90,500 per kg on Friday, December 20. This was down ₹2,500, or 2.16%, from the closing price of ₹92,500 per kg on Sunday, December 15.

International prices

Spot gold prices were down nearly 0.9% so far this week, trading around $2,624.15 per ounce as of 1841 GMT on Friday.

Spot silver prices, meanwhile, were down 3.5% so far this week to $29.5 per ounce after seeing some rebound in Friday’s trade.

Key triggers

The US Federal Reserve on Wednesday lowered the Fed Funds rate to a range of 4.25% to 4.5% but projected interest rates to fall to only 3.9% by the end of 2025, compared with a projection of 3.4% earlier. This hinted at just two rate cuts next year, not four, as the markets were expecting earlier.

Since gold and silver holdings do not yield interest, it becomes unattractive to invest in precious metals during a high interest-rate regime. Therefore, prospects of higher interest rates next year weighed on the prices of both yellow and grey metals.

The strengthening dollar index this week also negatively impacted gold prices. The US dollar index consolidated around 108, its highest level in two years, as a recent uptick in US treasury yields and steady economic trends kept the sentiment positive for the US currency.

As gold is dollar-denominated, when the US currency appreciates, gold costs more for investors buying in other currencies (including the Indian rupee). Thus, demand for gold decreases, putting downward pressure on prices.

Domestic demand for gold and silver in India is also declining as the wedding and festive season is off its peak, thereby failing to arrest the fall in prices.

What lies ahead?

International gold and silver prices recovered on Friday, indicating a slight reversal of a downward trend. While gold’s near-term outlook remains cautious, analysts believe lower prices may attract fresh buying in precious metals.

Also, the long-term outlook for gold remains strong, given the global geopolitical instability. Investors may see the dips as new buying opportunities, thereby supporting the prices of precious metals.