Precious metals faced a steep sell-off on Monday, August 31, as expectations for tighter US monetary policy gained traction. Gold and silver prices both fell, with COMEX gold down 0.91% to $4,488.60 an ounce and silver declining 0.83% to $66.44. The impact was even more pronounced in exchange-traded funds (ETFs) tracking these metals, with some silver ETFs plummeting by as much as 4.06% and gold ETFs losing up to 3.59%.
Domestically, MCX gold futures traded 1.14% lower at ₹154,496 per 10 grams, while MCX silver futures saw a 1.28% drop to ₹239,341 per kilogram.
Why Precious Metals Are Under Pressure
The primary drivers behind the decline in gold and silver prices are a combination of rising crude oil prices and increasing bond yields. Brent crude futures climbed 1.4% to $89.38 a barrel, and US crude rose 1.3% to $84.50, partly due to renewed geopolitical tensions. Higher oil prices often signal inflationary pressures, which can prompt central banks to maintain or even raise interest rates.
Comments from Federal Reserve Chair Kevin Warsh have further fueled investor concerns over inflation, strengthening the belief that the US central bank may adopt or sustain a tighter monetary policy. As a result, market probabilities for a September US rate hike have reportedly climbed to around 57%.
Furthermore, rising Treasury yields increase the opportunity cost of holding non-yielding assets like gold and silver. A stronger US dollar also makes dollar-denominated precious metals more expensive for international buyers, adding to the downward pressure.
ETFs Witness Sharper Declines
The sell-off in precious metal ETFs was notably more severe than the broader equity market's dip. Major silver ETFs saw significant drops:
- Nippon India Silver ETF (Silver BeES) fell 4.06% to ₹221.07
- SBI Silver ETF declined 4.05% to ₹226.55
- Tata Silver ETF dropped 3.98% to ₹22.44
- ICICI Prudential Silver ETF slipped 3.87% to ₹231.21
Gold ETFs also registered substantial losses:
- ICICI Prudential Gold ETF fell 3.59% to ₹130.75
- SBI Gold ETF declined 3.50% to ₹130.30
- Nippon India ETF Gold BeES dropped 3.48% to ₹126.30
- Tata Gold ETF was down 3.19% at ₹14.87
Investors are now closely monitoring US inflation data, Treasury yields, Federal Reserve policy statements, and geopolitical developments in the Middle East for indications of the next movement in precious metals markets.