Last week, gold prices experienced a significant plunge, causing a stir in both domestic and international markets. The decline was primarily driven by policy changes in India and sluggish demand in China, coupled with global economic data influencing investor sentiment.
In India, the sharp drop in gold prices was largely attributed to the government’s announcement of a substantial reduction in customs duties on gold and silver. The duty was slashed from 15% to 6% as part of the 2024 budget.
This policy shift led to a steep price adjustment in the domestic market. On the MCX, gold prices plummeted approximately 9% from their July 17 high of ₹74,731 per 10 grams. This significant adjustment was sharper than in other global markets due to the immediate impact of the customs duty cut on domestic pricing.
Internationally, gold prices were also under pressure, mainly due to a decline in demand for physical gold in China. The potential slowdown in seasonal demand and concerns about a recession affecting jewelry and retail investment demand contributed to the negative sentiment. This sluggish demand in one of the world’s largest gold markets led to a nearly 4.50% decline in COMEX gold prices, reflecting broader market apprehensions.
Market experts have weighed in on the situation, providing insights into the factors driving the price movements. Anuj Gupta, Head of Commodity & Currency at HDFC Securities, emphasized that the customs duty cut was the primary driver of the price decline in India. He noted that the reduction in basic customs duties significantly impacted gold prices, exacerbated by global trends and reduced demand in China.
Gupta also pointed out that the cooling US inflation data has fueled speculation of a potential rate cut by the US Federal Reserve in their upcoming September meeting. This prospect of lower interest rates provided some support for gold prices towards the end of the week, leading to a slight recovery.
Alex Kuptsikevich, Senior Market Analyst at FxPro, highlighted that gold found buying support around the $2360 mark, a critical level supported by the 50-day moving average.
He emphasized that the decline might be within a corrective phase and that a sustained move above $2405 per troy ounce would be necessary for a bullish trend to re-establish. Kuptsikevich’s analysis suggests that the recent price movements are part of a broader correction rather than a long-term downward trend.
Praveen Singh, Associate VP, Fundamental Currencies & Commodities at Sharekhan by BNP Paribas, echoed similar sentiments. He pointed out that despite the recent losses, softer US inflation data might help gold recover. However, Singh stressed that for a sustained upward movement, improvements in Chinese demand and clear indications of multiple Fed rate cuts would be necessary.
He added that the metal needs to reconquer the $2400 level to alleviate some of the selling pressure and that bears are eyeing a test of the $2300 level.
On the technical front, gold is supported at ₹66,300 per 10 grams on the MCX, with resistance at ₹69,945 per 10 grams. Breaking either side of this range could indicate a new trend direction in the domestic market. Internationally, critical levels include $2360 and $2320 per troy ounce. A strong move below these levels could signal a prolonged decline, while a rebound above $2405 per troy ounce would be necessary for a bullish outlook.
