Gold, silver prices fall: ETFs tumble up to 4.06% as rate-hike bets rise on oil, yields

Gold and silver prices fell sharply on Monday, August 31, with gold down 0.91% to $4,488.60 an ounce and silver declining 0.83% to $66.44. Gold and silver ETFs also came under heavy selling pressure, with silver ETFs falling up to 4.06% and gold ETFs losing as much as 3.59%, as higher oil prices and bond yields strengthened expectations of tighter US monetary policy.

Gold, silver extend losses

Precious metals remained under pressure after a steep sell-off on Friday, when gold fell 3.2% following a jump in US Treasury yields. Comments from Federal Reserve Chair Kevin Warsh heightened investor concerns over inflation and raised expectations that the US central bank could keep monetary policy tighter.

In domestic markets, MCX gold was trading 1.14% lower at Rs 154,496 per 10 grams, while MCX silver futures fell 1.28% to Rs 239,341 per kg around 9:10 am.

Silver ETFs witnessed particularly sharp declines. Nippon India Silver ETF, or Silver BeES, fell 4.06% to Rs 221.07, while SBI Silver ETF declined 4.05% to Rs 226.55. Tata Silver ETF dropped 3.98% to Rs 22.44 and ICICI Prudential Silver ETF slipped 3.87% to Rs 231.21.

Gold ETFs were also firmly in the red. ICICI Prudential Gold ETF fell 3.59% to Rs 130.75, SBI Gold ETF declined 3.50% to Rs 130.30, while Nippon India ETF Gold BeES dropped 3.48% to Rs 126.30. Tata Gold ETF was down 3.19% at Rs 14.87.

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Gold, silver and ETF prices

Why are gold and silver falling?

The immediate pressure on bullion is coming from higher crude oil prices and rising bond yields. Renewed fighting between the US and Iran has pushed crude prices higher, with Brent futures climbing 1.4% to $89.38 a barrel and US crude rising 1.3% to $84.50.

Higher oil prices can fuel inflation, potentially making the Federal Reserve less willing to cut interest rates or more inclined to keep rates higher for longer. Markets have consequently increased the probability of a September US rate hike to around 57%, according to a Reuters report.

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Higher Treasury yields also increase the opportunity cost of holding gold and silver, as these metals do not generate interest income. A stronger US dollar can add to the pressure by making dollar-priced precious metals more expensive for overseas buyers.

ETFs fall faster than equities

The sell-off in precious-metal ETFs was significantly sharper than the broader equity-market decline. At 10:11 am, the Sensex was down 423 points, or 0.55%, while the Nifty 50 had declined 159 points, or 0.66%.

With gold, silver, bullion prices and ETFs all under pressure, investors are closely watching US inflation, Treasury yields, Federal Reserve policy expectations and developments in the Middle East for the next direction in precious metals.