Gold price dips amid dollar strength ahead of US Fed rate signal

Gold prices opened on the Multi Commodity Exchange (MCX) on Wednesday at Rs 65,599 per 10 grams and hit an intraday low of Rs 65,588. In the international market, prices hovered around $2,157.35 per ounce.

Meanwhile, silver opened at Rs 75,326 per kg and hit an intraday low of Rs 75,102 on the MCX. In the international market, the price hovered around $24.98 per ounce.

Manav Modi, Analyst, Commodity and Currency, MOFSL, said, “Gold price inched lower as the dollar strengthened a day before the Federal Reserve signals its interest rate stance at the end of the U.S. central bank's two-day policy meeting. The dollar index rose to a two-week high after marking strong gains over the past two sessions, while the US 10Y Yield continued to hover around 4.3%, weighing on the gold price.”

Bullion dipped nearly 1% last week after the release of hotter-than-expected February U.S. CPI and PPI, which reduced hopes of early Fed rate cuts due to the threat of persistent inflation.

The US Fed is widely expected to keep interest rates steady after a two-day meeting later today. But, markets fear a potentially hawkish signal from the central bank, particularly a dialling down in its interest rate cut forecasts, following hotter-than-expected inflation data for the past two months.

“Market participants will also watch Governor Powell's comments and inflation and growth forecasts. Meanwhile, the Bank of Japan (BOJ) ended eight years of negative interest rates and made a few tweaks to its policy. On the data front, Housing starts and building permits were reported better than expected, further supporting the dollar index. Focus today will also be on UK CPI,” said Modi.

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Jateen Trivedi, VP Research Analyst, LKP Securities, said, "The rupee depreciated by 13 paise, closing at Rs 83.04 against the US dollar. This decline is primarily driven by a significant rise in the dollar index, which surged by $0.70 to $103.70. This surge stems from a shift in expectations regarding the US Federal Reserve’s interest rate policy.”

Markets now anticipate that the Fed will hold off on interest rate cuts in March, potentially delaying them until June or July. This shift in sentiment has strengthened the dollar across the board, leading to a general weakening of other currencies, including the rupee.

“Looking ahead, the ongoing two-day policy review by the Fed will be crucial. The tone of the Fed’s statements will likely impact the dollar’s trajectory. A hawkish stance could further bolster the dollar, potentially pushing it towards $104.50 and weakening the rupee to around Rs 83.20,” said Trivedi.