MCX Gold Prices Plummet Over ₹2,000 to ₹54,000 Amid Rising US-Iran Tensions

Gold Prices Plunge on US-Iran Tensions

Gold prices on the Multi Commodity Exchange (MCX) experienced a significant decline in the evening session on Thursday, 28 May, as fresh strikes by the US and Iran boosted crude oil prices, reigniting inflation fears and the scope of higher interest rates later this year.

The MCX gold futures for the June expiry slipped as much as ₹2,041 per 10 grams, or 1.31%, to ₹153,586. Trading resumed after being shut in the first half on account of the Bakri Id holiday. The domestic prices mirrored the weakness in global markets. Spot gold was down 1.5% at $4,389.99 per ounce, earlier falling to its lowest level since 26 March. US gold futures for June delivery fell 1.5% to $4,387.70.

The rise in oil prices, which rose 2% today after Iran's Revolutionary Guards said they targeted a US airbase in response to a US attack in the port city of Bandar Abbas, raises concerns around inflation. This could prompt the US central bank to raise rates, weighing on non-interest-yielding assets like bullion. Federal Reserve Governor Lisa Cook on Wednesday said she feels the US central bank should hold short-term interest rates steady for now, but is prepared to hike rates if needed, according to a Reuters report.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The Personal Consumption Expenditures figure in the US, which is perceived as the Fed's preferred inflation gauge, is expected to signal the US Federal Reserve's monetary policy path. Meanwhile, the US dollar rose to a one-week high, making greenback-priced bullion more expensive for holders of other currencies.

Gold has struggled to regain strong upside momentum as investors increasingly focus on the inflationary impact of elevated energy prices, said Manav Modi, Commodities Analyst, Motilal Oswal Financial Services. Recent inflation readings across major economies have reinforced expectations that central banks may need to maintain a hawkish stance or even consider further rate hikes in the coming months, he added.

The bullion has faced selling pressure since the onset of the US-Iran war, bringing an end to its fast and furious rally since last year. Ruchit Thakur, Market Analyst, VT Markets, explained that despite the Middle East crisis, one of the primary reasons why gold did not gain is because the market has not yet experienced a serious liquidity crisis.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

"In classic panic scenarios such as the 2008 financial crisis, the early COVID shock, or severe banking stress, investors flock to gold as a pure safety hedge. In the current climate, the global economy is slowing but not collapsing, and financial markets continue to expect central banks to intervene if conditions worsen. As a result, safe-haven purchases are no longer as urgent," Thakur noted.

Despite the short-term consolidation, the long-term macro underpinning for gold appears to be stronger currently than in many previous cycles due to central bank accumulation, reserve diversification, and growing geopolitical dispersion, opined Thakur.