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Gold prices drop ahead of Dhanteras and Diwali festivals; rates for 18, 22, and 24 karat presented.
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Aaj Tak
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Gold prices drop ahead of Dhanteras and Diwali festivals; rates for 18, 22, and 24 karat presented.

For those preparing to purchase gold for the Dhanteras and Diwali festivals, there is good news: gold prices have decreased before the start of the festivals. In India, demand for buying gold jewelry usually increases during this period, so the softening of prices may bring some relief to buyers.

However, the future movement of gold prices will depend on many global factors. Factors such as crude oil prices, tensions in the Middle East, and signals from the US Federal Reserve regarding interest rates can determine the trajectory of gold's movement.

On the Multi Commodity Exchange (MCX), the price of 24-karat gold fell by 0.42% on October 20, reaching ₹1,47,300 for 10 grams. In the retail market in Delhi on October 20, the price of 22-karat gold was ₹13,505 per gram, and for 18-karat gold—₹11,052 per gram.

In the international market, the spot gold price dropped by 0.3%, reaching $4,128.92 per ounce. The American gold futures contract with December delivery also fell by 0.3%, amounting to $4,148.50 per ounce.

It is important to note that the mentioned prices reflect values during trading. The price buyers receive in stores may differ. On the domestic market, gold prices are also dependent on import duties, the dollar-to-rupee exchange rate, local demand, taxes, and jewelry manufacturing costs.

The main reason cited for the weakening of gold prices is the rise in crude oil prices. According to a report by the news agency Reuters, concerns about oil supplies intensified due to the escalation of the situation in the Middle East. The price of Brent Crude remains at a level higher than in the last five months.

It is reported that Yemen rebels supported by Iran announced attacks on Saudi Arabia's energy facilities, airports, and military bases on Monday.

Gold is considered an alternative asset for investment during periods of inflation and uncertainty; however, it does not generate regular income, unlike some investment instruments such as government bonds, which pay interest. Therefore, when an increase in interest rates is expected, income-generating instruments may become more attractive to investors, putting pressure on gold prices.

Investors are also closely monitoring the US Federal Reserve meeting scheduled for October 27-28. The Fed's stance on interest rates may determine the further volatility of gold prices. If the Fed's stance is less hawkish than expected, gold may gain support. However, if signs emerge that interest rates will remain high for a long time, this could increase pressure on prices.

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Reasons for gold price decline: Analysts discuss prospects of falling to 100 thousand rupees
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Reasons for gold price decline: Analysts discuss prospects of falling to 100 thousand rupees

Following a period of record growth, the price of gold is currently undergoing a significant correction. On the international market, gold has fallen by approximately 27% compared to record levels in January, while the Indian market shows a decline of about 23% from the January peak. Compared to the high on MCX in August, the domestic market has shown a drop of more than 10%.

Buyers are questioning whether prices will continue to fall, especially ahead of holiday and wedding seasons. On MCX, gold futures reached ₹164,773 per 10 grams at the end of August, after which there was a sharp drop, and last week the price fell to ₹145,991, which is about 11% below the August record. Globally, the spot gold price has decreased from a peak of around $4,698 per ounce to approximately $4,130 per ounce.

The recent decline in gold prices is due to several global factors. Initially, prices experienced pressure due to investors taking profits after reaching record highs. Subsequently, concerns related to inflation and interest rates in the US weakened gold's growth. The rise in real yields on US bonds made gold, which does not yield interest, less attractive to investors. Furthermore, the strengthening dollar has put pressure on international gold prices. High inflation levels and the probability of a tight monetary policy in America also influence the value of gold.

Experts suggest that further declines in gold may be possible in the short term, but the level of ₹125,000 per 10 grams is not yet the base scenario. Analysts believe that on the international spot market, gold could fall into the range of $3,950–$4,025 per ounce. When converted to MCX, this could lead to a price between ₹144,500–₹146,200 per 10 grams. Reaching the ₹125,000 mark is only possible with a further increase in the yield on 10-year US bonds and a significant overshoot of US CPI inflation forecasts in October, which is currently considered unlikely.

According to specialists, an important support zone for international gold is $3,930–$4,000 per ounce. If this support is broken, the next support level may be in the range of $3,600–$3,750 per ounce, and the probability of reaching this zone is estimated at about 25%. In that case, gold in the Indian market could approach ₹134,000 per 10 grams. It should be noted that this is not a base forecast, but an assessment of a situation where global gold prices fall below current support.

Experts currently consider a drop in gold to ₹100,000 per 10 grams extremely unlikely. For this level to be reached, the international price would have to fall to approximately $2,800 per ounce. Specialists note that gold is still supported by several structural factors, including the process of de-dollarization, geopolitical tensions, central bank activity, and long-term inflation concerns. Thus, reaching the ₹100,000 level would require a substantial change in current conditions.

The decline in gold prices in India may be somewhat limited compared to global markets. One factor is the dynamics of the Indian rupee, as the domestic price depends on both the dollar exchange rate and the strength or weakness of the rupee. Moreover, the start of the festive and wedding season in India is expected to increase demand for gold, which may curb price declines. Nevertheless, high prices also affect retail jewelry purchases, prompting customers to opt for lighter ornaments.

Current signs indicate the possibility of further gold correction in the short term. Key factors determining the future direction remain the support around $4,000 in the international market and the movement of US bond yields. Experts believe that the current correction may continue in the near term, but it can also be viewed as a consolidation phase within a long-term uptrend. Central bank buying, ETF investments, and geopolitical uncertainty may provide long-term support to gold.

Although a drop to ₹125,000 is possible, it requires the emergence of specific conditions, such as a sharper rise in the yield on 10-year US bonds and a significant overshoot of inflation forecasts in October. Currently, experts assess the probability of this scenario as low. Therefore, the picture of gold prices is ambiguous: there is a risk of further decline in the short term, but the probability of reaching a very low level of ₹100,000 is currently considered extremely low.

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