Rupee Fluctuations: Potential Impact on Gold and Silver Prices in the Near Term

Rupee Appreciation Expected to Temporarily Boost Bullion Prices

The Indian rupee has gained 130 paise in early trade, with analysts predicting a mild correction in the near term. This gain comes after the Reserve Bank of India (RBI) restricted onshore long positions on the US dollar on March 27, limiting bets against the rising US dollar.

The rupee traded at 93.59 against the dollar during early trades, representing a 1.3% decline from the record low of 94.85 on March 27. The RBI directive capped the net open position (NOP-INR) in the offshore deliverable market at $100 million, prompting a recovery of 50 paise during intraday trade.

Gold and silver prices may see a temporary correction due to the rupee's recent strength. Renisha Chainani, Head of Research at Augmont, believes that a 1 percent to 1.5 percent appreciation in the rupee can lead to a decline of Rs 1,200 to Rs 2,000 per 10 grams in gold prices and Rs 3,000 to Rs 6,000 per kilogram in silver prices.

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

VK Vijayakumar, CIS, at Geojit Investments Limited, notes that the RBI directive will curb excessive speculation in the futures market, but may not prevent the rupee's weakness, which stems from rising trade and CAD triggered by the spike in crude and sustained FPI selling in the market.

While the rupee's strength offers buy-on-dips opportunities and inventory hedging windows for traders and jewellers, Chainani cautions that the broader trend for domestic bullion remains supported, as underlying macro risks continue to favour precious metals.