Gold Prices Extend Gains on US Fed Rate Cut Hopes; Key Support and Resistance Levels
Gold and silver prices continued their upward momentum on Wednesday, November 26, building on the previous session's solid gains of over one percent. The precious metals rallied in early trading driven by robust spot market demand and growing expectations of a US Federal Reserve interest rate cut in December.
Domestic Market Performance
MCX gold December futures climbed 0.50% to ₹1,25,835 per 10 grams around 9:10 am on Wednesday. Silver demonstrated even stronger gains, with MCX silver December futures advancing 0.91% to ₹1,57,750 per kg during the same timeframe.
The continued rally in domestic markets reflects both international trends and healthy demand from Indian buyers, who remain among the world's largest consumers of precious metals.
International Gold Reaches Two-Week High
International gold prices surged to a near two-week high on Wednesday, propelled by fresh US macroeconomic data that weakened the dollar and strengthened rate cut expectations for the Federal Reserve's December policy meeting.
Dollar Weakness Supports Gold
The dollar index slipped to near 99.60, touching a one-week low. This currency weakness makes gold more attractive and affordable for overseas buyers holding other currencies, providing fundamental support for higher precious metal prices.
Additionally, the benchmark 10-year US Treasury yields remained near one-month lows hit in the previous session, reducing the opportunity cost of holding non-yielding assets like gold.
US Economic Data Fuels Rate Cut Expectations
Recent US economic reports have bolstered market expectations for a Federal Reserve rate cut at the December policy meeting:
Retail Sales Data
US retail sales grew at a slower pace than analysts anticipated in September. The US Commerce Department's data revealed that overall retail sales increased by 0.2% on a month-on-month basis in September, significantly below August's 0.6% increase.
The deceleration in consumer spending—a key driver of US economic growth—suggests potential economic softening that could prompt the Fed to ease monetary policy.
Producer Price Index
The US Labour Department reported that the Producer Price Index (PPI) rose 0.3% in September, meeting market forecasts. While inflation remains present, the in-line reading suggests price pressures are not accelerating, giving the Fed room to consider rate cuts without risking an inflation resurgence.
Data Release Delays
Both economic reports released on Tuesday had been delayed due to a record 43-day government shutdown between October and mid-November. The prolonged shutdown halted publication of various economic data, creating a backlog that markets are now digesting.
Geopolitical Factors: Russia-Ukraine Developments
While Federal Reserve policy expectations provide strong support for gold prices, positive signals regarding the Russia-Ukraine conflict could potentially limit upside gains for the safe-haven metal.
US President Donald Trump announced parallel diplomatic missions to Moscow and Kyiv to advance a proposed US-backed peace plan. This development has raised hopes that the biggest European conflict since World War II could soon reach a resolution.
A successful peace deal would likely reduce geopolitical risk premiums currently embedded in gold prices, though the Federal Reserve rate trajectory remains the dominant factor driving precious metal markets.
Technical Analysis: Key Levels to Watch
According to Rahul Kalantri, Vice President of Commodities at Mehta Equities, traders should monitor the following critical support and resistance levels:
Gold Technical Levels
International Gold (USD per ounce):
- Support levels: $4,100 and $4,065
- Resistance levels: $4,170 and $4,195
MCX Gold (INR per 10 grams):
- Support levels: ₹1,24,350 and ₹1,23,580
- Resistance levels: ₹1,25,850 and ₹1,26,500
With gold currently trading around ₹1,25,835, the metal is testing the first resistance level. A decisive break above ₹1,25,850 could open the path toward ₹1,26,500, while failure to sustain above this level may trigger profit-booking toward the ₹1,24,350 support zone.
Silver Technical Levels
International Silver (USD per ounce):
- Support levels: $51.00 and $50.65
- Resistance levels: $51.85 and $52.20
MCX Silver (INR per kg):
- Support levels: ₹1,54,850 and ₹1,53,600
- Resistance levels: ₹1,57,110 and ₹1,58,000
Silver's stronger percentage gain of 0.91% compared to gold's 0.50% reflects the white metal's higher volatility and industrial demand components. Currently trading above the first resistance at ₹1,57,110, silver could test ₹1,58,000 if momentum continues.
Federal Reserve Policy Outlook
The December Federal Reserve policy meeting has become increasingly crucial for precious metals markets. Several factors support the case for a rate cut:
- Slowing economic growth: Weaker retail sales suggest consumer spending is moderating
- Contained inflation: PPI data showing inflation meeting expectations without acceleration
- Dollar weakness: Recent currency depreciation reducing imported inflation pressures
- Labor market concerns: Earlier data suggesting employment growth moderation
Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making precious metals more attractive relative to interest-bearing alternatives like bonds and savings accounts.
Impact of Interest Rates on Gold Prices
Understanding the inverse relationship between interest rates and gold prices is crucial for investors:
- Rate cuts benefit gold: Lower rates reduce returns on fixed-income investments, making gold more competitive
- Currency impact: Rate cuts typically weaken the dollar, making dollar-denominated gold cheaper for international buyers
- Real yields: The gap between nominal interest rates and inflation determines gold's attractiveness as an inflation hedge
- Investment flows: Rate cut expectations often trigger capital flows from bonds to gold
Indian Market Dynamics
Several India-specific factors influence domestic gold and silver prices:
- Festival and wedding season demand: Traditional peak buying periods supporting prices
- Import duties: Government policies affecting final retail prices
- Rupee-dollar exchange rate: Currency fluctuations impacting import costs
- Investment demand: Growing interest in gold as a portfolio diversification asset
Investment Considerations
For investors considering precious metals exposure, several factors warrant attention:
Short-term Traders
- Monitor technical levels closely for entry and exit points
- Watch for Federal Reserve statements and economic data releases
- Be prepared for volatility around geopolitical developments
- Use appropriate position sizing and stop-loss strategies
Long-term Investors
- Consider gold as a portfolio diversification tool
- Evaluate allocation based on overall risk tolerance
- Focus on fundamental drivers rather than short-term fluctuations
- Consider rupee depreciation and inflation hedging benefits
Risk Factors to Consider
Despite the positive momentum, investors should be aware of potential headwinds:
- Geopolitical resolution: Peace in Ukraine could reduce safe-haven demand
- Stronger economic data: Better-than-expected US data could delay rate cuts
- Federal Reserve hawkishness: Central bank signaling concerns about inflation
- Dollar strength: Any reversal in dollar weakness could pressure gold prices
- Profit-booking: After recent gains, technical corrections remain possible
Market Outlook
The near-term trajectory for gold and silver prices will largely depend on:
- Confirmation of Federal Reserve rate cut expectations
- Further US economic data releases
- Dollar index movements
- Progress in Russia-Ukraine peace negotiations
- Indian domestic demand during the ongoing season
With gold testing resistance levels and silver showing stronger momentum, the technical picture suggests potential for further gains if the ₹1,25,850 level for gold and ₹1,57,110 for silver are decisively breached.
Conclusion
Gold and silver prices continue their upward trajectory, supported by growing expectations of a December Federal Reserve rate cut and a weakening dollar. The combination of slower US retail sales growth and in-line inflation data has strengthened the case for monetary policy easing.
While geopolitical developments regarding the Russia-Ukraine conflict could provide some headwinds, the fundamental support from interest rate expectations remains robust. Traders should monitor the key technical levels outlined by experts, as breaks above resistance could signal further upside momentum.
For investors, the current environment presents both opportunities and risks. Those considering precious metals exposure should evaluate their investment horizon, risk tolerance, and portfolio objectives while staying informed about Federal Reserve policy developments and global economic trends that continue to drive these strategic markets.
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