Gold prices drop for 3rd week as dollar gains; Fed remarks curb safe-haven buying

Gold prices extended losses for the third consecutive week as a strong US dollar and cautious remarks from Federal Reserve officials weighed on investor sentiment, analysts said.

The sustained firmness in the dollar and a wait-and-watch approach from the US Federal Reserve have dampened demand for the safe-haven asset, keeping bullion prices in a narrow trading range through the holiday-shortened week, they added.

On the Multi Commodity Exchange (MCX), gold futures for December delivery slipped by Rs 165, or 0.14 per cent, during the past week, to settle at Rs 1,21,067 per 10 grams on Friday.

The yellow metal largely hovered near Rs 1.21 lakh per 10-gram level, which is still about Rs 11,000 below its October 17 peak of Rs 1.32 lakh per 10 grams.

In the international market, Comex gold futures for December delivery rose by USD 13.3, or 0.33 per cent, in the past week. It had settled at USD 4,009.8 per ounce on Friday.

Analysts said the metal started the week firm, briefly trading above the USD 4,000 mark before a stronger dollar dragged prices lower. Renewed risk-aversion in the mid-week provided limited support, helping gold trim its losses.

''Gold traded in a tight consolidation range through the week. While bargain-buying emerged on mid-week dips, the strong directional momentum that was visible in October has tapered.

''The market currently appears to be in a pause-and-assess phase, with participants waiting for clearer cues from the US dollar and Treasury yields before committing to larger positions,'' Chirag Doshi, CIO of Fixed Income Assets, LGT Wealth India, said.

NS Ramaswamy, Head of Commodity & CRM, Ventura said, ''Gold prices continue to remain firm, supported by a softer US dollar and expectations of another Federal Reserve rate cut.

''The dollar index has been lodged within the trading range of 98-99-100 since August,'' he said, adding that a softer dollar could provide near-term relief for bullion.

Ramaswamy pointed out that the prolonged US government shutdown, entering the second month, has delayed the release of key economic reports of employment and inflation data, creating a 'data vacuum' and heightening uncertainty.

''Private reports indicate signs of weakness in the labour market, leading the Federal Reserve to ease policy rates sooner than believed. Lower interest rates tend to support gold,'' he said.

According to Chirag Doshi, a stronger dollar and higher yields initially weighed on precious metals. Renewed risk aversion later in the week lent some support.

''A key negative catalyst came from China, which reduced its VAT exemption on certain retail gold purchases, likely cooling physical demand sentiment in Asia,'' Doshi said.

Silver underperforms as industrial sentiment softens amid global slowdown fears: Silver prices also eased during the week, reflecting a similar consolidation seen in the yellow metal.

On the MCX, the white metal futures for December delivery declined by Rs 559, or 0.38 per cent, in the holiday-shortened week. It had closed at Rs 1,47,728 per kilogram on Friday.

Comex silver futures for December delivery edged lower last week. It had settled at USD 48.14 an ounce on Friday.

''Silver continued to exhibit high-beta behaviour, moving more sharply than gold on both upswings and pullbacks,'' said Doshi, adding that ''short bursts of festive and industrial demand triggered quick rallies, but these were often met with equally fast profit-taking, indicating that short-term traders are driving price action, rather than long-term investors building strategic positions''.

He added that exchange-traded funds (ETF) outflows have removed a key cushion, making domestic prices more sensitive to global fluctuations.

''However, because the rupee remained weak, the downside in MCX prices was limited -- resulting in consolidation rather than a sharp correction,'' Doshi said.