Gold, silver prices fall in India: Why are precious metals under pressure?

Gold and silver prices declined in Indian futures trade on Wednesday, August 19, with weak spot demand and profit-taking weighing on domestic prices. The fall came even as international precious metal prices moved higher, highlighting the role of local demand and positioning in determining domestic futures prices.

On the Multi Commodity Exchange (MCX), gold futures for October delivery fell Rs 636, or 0.41%, to Rs 1.53 lakh per 10 grams. The contract recorded a business turnover of 837 lots.

Silver futures for September delivery declined Rs 4,023, or 1.73%, to Rs 2.28 lakh per kg, with a business turnover of 2,577 lots.

Gold and silver prices

The immediate pressure on domestic gold prices came from weak spot demand, while silver declined as market participants reduced their positions. The sharper fall in silver also reflects its greater sensitivity to changes in investor positioning and industrial demand expectations.

However, the decline in Indian futures prices does not necessarily indicate a broad-based global sell-off. International markets were moving in the opposite direction. Gold futures in New York were up 0.10% at around $4,338.74 an ounce, while silver gained 0.99% to $62.74 an ounce.

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Gaurav Garg, Head of Research at Lemonn, said gold was showing some recovery after the previous session's decline, supported by easing US Treasury yields. However, investors remained cautious ahead of the release of the US Federal Reserve meeting minutes, which could provide clues about the future direction of US interest rates.

US interest-rate expectations remain a key driver for precious metals because lower rates can reduce the opportunity cost of holding non-yielding assets such as gold.

Geopolitical risks

Despite the near-term weakness, gold continues to receive support from geopolitical uncertainty. Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities, said gold initially declined by around Rs 1,000 to Rs 1,53,500 before recovering towards Rs 1,54,300.

“Higher crude prices and continued uncertainty after the US-Iran MOU ended without fresh talks kept sentiment cautious. The Strait of Hormuz remains a key geopolitical trigger, while markets will also track the FOMC meeting minutes, US jobs data and crude movements for further direction,” Trivedi said.

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He added that gold is likely to remain volatile as geopolitical developments continue to influence safe-haven demand.

What does the fall mean?

The decline in prices does not necessarily mean that Indian consumers are losing interest in gold. With prices remaining elevated, buyers may simply be changing how they purchase the metal.

Kaushlendra Sinha, CEO of the Indian Association for Gold Excellence and Standards, said consumers continue to have a strong affinity for gold but are increasingly choosing lightweight and trendy jewellery.

Some households are also opting to exchange or redesign existing jewellery instead of buying fresh gold. This allows consumers to unlock the value of their existing holdings while reducing the quantity of new gold they need to purchase.

With the festive and wedding season approaching, domestic demand could become an important factor for prices. However, the outlook will also depend on US interest-rate expectations, Treasury yields, the dollar, geopolitical developments and movements in the rupee.

For retail buyers, MCX prices should not be confused with final jewellery prices. Retail gold prices also reflect taxes, making charges and jeweller margins, while silver rates can vary between cities and across physical and futures markets.

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