The gold price was nearly unchanged on Friday but remained on course for a second straight weekly decline. Spot gold traded at $4,019.90 as of 6:35 am, down 3.6 per cent for the week so far, ET Now reported.
The domestic gold price picture was similar. Spot silver fell 0.7 per cent to $54.2280, and gold and silver futures on the MCX settled at Rs 1,43,303 per 10 grams and Rs 1,99,917 per kilogram, respectively, leaving silver below the Rs 2 lakh mark. ET Now reported the figures on Friday morning, with the MCX contracts not trading at the time of writing. For context, a 3.6 per cent weekly fall at current prices works out to roughly $150 an ounce from the week's starting level.
Last week also ended lower, making this the second consecutive weekly decline for the metal. A second weekly decline would confirm that selling pressure has carried over from last week.
Why the gold price is down this week
Rising energy prices were among the factors weighing on bullion. The rise was supported by the conflict in the Middle East and uncertainty over traffic through the Strait of Hormuz, ET Now reported.
The Strait of Hormuz carries a significant share of the world's seaborne oil, so any threat to traffic there feeds quickly into crude prices and then into inflation expectations. Brent crude December futures were quoted at $114.16, up 0.94 per cent, Business Standard reported.
The United States and Israel have drawn up plans for renewed military strikes on Iran after the US midterm elections, The New York Times reported. The development adds to uncertainty around the strait and has been pushing oil prices higher.
Higher energy prices can fuel inflation concerns, raising expectations that central banks will keep interest rates higher for longer. According to the CME FedWatch tool, expectations of a Federal Reserve rate hike at the December FOMC meeting stood at 80 per cent. The December meeting is the next scheduled Fed decision after next week's, and the probability priced in shows how firmly traders expect borrowing costs to rise.
Higher interest rates raise the opportunity cost of holding non-yielding assets such as gold, which pressures the gold price. Gold pays no interest, so when rates rise, bonds and deposits look more attractive by comparison and some investors move money out of bullion. With the 10-year Treasury yield near 5 per cent, holding metal that pays nothing costs the investor the interest they give up.
A firm US dollar added to the weight. The dollar index traded at 101.55, and the 10-year yield stayed near the 5 per cent mark, ET Now reported. A stronger dollar makes gold costlier for buyers using other currencies, which tends to dent demand. The metal's weakness this week has come even as geopolitical risks usually support it, which shows how heavily rate expectations are weighing. Silver's 0.7 per cent fall to $54.2280 was milder than gold's weekly slide, but the white metal has tracked bullion lower through the week.
In India, where gold is bought both as an investment and for festivals and weddings, price moves are watched closely by jewellers and buyers alike.
Gold price outlook: FOMC decision due October 28
Market participants are watching the US Federal Open Market Committee meeting scheduled next week, with the US interest rate decision due on October 28, ET Now reported. The outcome is expected to give further direction to the gold price.
Traders are also tracking US-Iran headlines, which have a direct bearing on energy prices and could influence the direction of bullion, ET Now reported.
For the week, the gold price is down 3.6 per cent in dollar terms, a second consecutive weekly fall. For Indian buyers, the MCX settlement leaves the domestic gold price at Rs 1,43,303 per 10 grams. The next scheduled US rate decision after next week's meeting is in December, when the market sees an 80 per cent chance of a hike.