Gold prices witnessed a sharp decline on Monday, falling to a two-week low. This downturn was exacerbated for investors by the news of a major trade agreement between the United States and the European Union. This agreement has weakened the demand for gold as a safe haven investment.
Spot gold fell by 0.1% to $3,332.39 per ounce, marking its lowest level since July 17.
US-EU Trade Deal Dims Safe Haven Appeal
The primary reason for the drop in gold prices is a significant trade agreement between the US and Europe. This deal was discussed last week between US President Donald Trump and European Union President Ursula von der Leyen. Following their discussions, it was decided that the European Union would impose a 15 percent tariff on several products being sent to the US. Notably, the heavy 27.5 percent tariff on the automobile sector has been reduced to just 15 percent.
This deal has created an atmosphere of stability in the global market, making investors more willing to take risks. As a result, their inclination towards gold, considered a safe investment, has decreased.
Impact on COMEX, Slight Increase in Silver
Gold prices also fell on COMEX, the commodity exchange. Here, the price of gold fell by 0.07 percent to $3,333.70 per ounce. However, silver saw a slight increase, with its price rising by 0.17 percent to $38.43 per ounce.
Fed Meeting This Week to Determine Gold's Direction
The market's focus this week is on the two-day meeting of the US Federal Reserve. This meeting may determine the future direction of gold. Experts believe that the Fed may keep its benchmark interest rate within the range of 4.25 to 4.50 percent.
Fed Chairman Jerome Powell recently indicated that no rate changes would be made until more economic data becomes available. Powell's statement makes it clear that the Fed may adopt a cautious approach this time.
Trump and Powell Meeting Also Stirred Activity
The meeting between Donald Trump and Fed Chairman Jerome Powell last Friday also stirred activity in the market. Trump described the meeting as positive, adding that Powell seemed eager to cut interest rates.
If interest rates are indeed cut, it will directly impact the strength of the dollar. In such a scenario, gold prices could rebound. However, for the time being, investors are cautious and refraining from making new gold purchases.
Impact of Rupee's Movement Also Visible
Another major factor affecting gold prices in the domestic market is the movement of the Indian Rupee. If the Rupee weakens against the dollar, gold prices in India may increase. However, the dollar is currently b at the global level, which could put pressure on gold prices in the domestic market as well.
Slow Demand in Wedding Season
Another factor contributing to the falling gold prices is the lack of demand in the domestic market. Gold demand is typically weak in the months of July-August because this is not wedding season. Gold purchases remain limited until the festival or wedding season begins.
Key Factors to Watch for Gold's Movement
- Further agreements between the US and the European Union
- The Fed's announcement regarding interest rates
- The strength or weakness of the dollar
- When the festive demand begins in the domestic market
The current decline in gold prices is the result of several global factors. If the Fed's policy, the movement of the dollar, and global deals continue to have the same impact in the coming weeks, further volatility may be seen in the gold market.
