Gold and Silver Prices to Remain Volatile Amid US Dollar, Bond Yields, and US-Iran Tensions

The precious metals market is bracing for continued turbulence. With the US dollar, bond yields, and escalating US-Iran tensions serving as key drivers of price fluctuations.

On Wednesday, investors will be watching the Reserve Bank of India's monetary policy announcement with heightened interest, as market analysts anticipate a 25-basis-point rate hike.

On the MCX, December gold futures plummeted Rs 2,887, or 2% of their value, to close at Rs 1.5 lakh per 10 grams. Meanwhile, silver futures declined by Rs 8,819, or nearly 4% of their value, to Rs 2.25 lakh per kg.

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Jateen Trivedi, Vice President of Research Analysis at LKP Securities, noted that MCX gold faced significant pressure last week, largely due to a stronger US dollar and rising bond yields, which led to profit-booking across various asset classes.

Gold initially benefited from softer-than-expected US employment data, which tempered expectations of aggressive monetary policy tightening by the Federal Reserve. However, this support was short-lived as investors sought to lock in gains towards the end of the week, according to Trivedi.

Comex December gold futures dropped $158.9, or 3.7% of their value, to $4,162.3 an ounce. Silver, meanwhile, fell $4.38, or 6.7% of its value, to $60.41 an ounce.

A stronger US dollar and elevated bond yields continue to pose significant challenges for the bullion market. Additionally, broader weakness across commodities and expectations of further rate increases by central banks have weighed on prices, as Pranav Mer, Senior Vice President of EBG - Commodity &amp. Currency Research at JM Financial Services Ltd, pointed out.

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Geopolitical developments, however, may still bring fresh volatility to the market. Following reports of increased oil flows from West Asia, some of the war-risk premium in bullion has eased. Despite mixed signals on the possibility of further escalation, investors remain cautious, according to Mer.

For gold, the direction of the US dollar and US Treasury yields will be vital in determining its trajectory. A sustained move in the dollar above 102 or a further rise in Treasury yields could put additional pressure on the metal. Conversely, a reversal in either could offer some relief, Trivedi noted.

As the US-Iran standoff continues to simmer, the global market is bracing for a potential flashpoint that could reignite a surge in demand for gold and silver, traditionally sought refuge by investors seeking safe-havens. Despite the uncertainty, analysts like Trivedi note that prices remain stuck in a precarious balance, torn between upward momentum and downward pressure.