The weakness in bullion followed a sharp rise in oil prices and the US dollar after fresh US military strikes on Iran heightened geopolitical tensions in the West Asia.
Why are gold and silver prices falling?Several factors are weighing on bullion prices:Stronger US dollar: The dollar remained near its weekly highs against major currencies. Since gold is priced in dollars, a stronger greenback makes the metal more expensive for buyers using other currencies, reducing demand.Higher oil prices raise inflation concerns: Oil prices climbed nearly 3% after the latest developments in the West Asia. Higher energy prices could keep inflation elevated, raising expectations that interest rates may remain higher for longer.
Rate expectations: Markets have increased the probability of a September US Federal Reserve rate hike to more than 67%, according to the CME FedWatch Tool. Higher interest rates typically reduce the appeal of non-yielding assets such as gold and silver.
Investors await Fed minutes: Traders are also looking ahead to the minutes of the Federal Reserve’s June policy meeting for fresh clues on the future path of US interest rates.
Other developments supporting goldDespite the day’s decline, some developments could provide longer-term support for bullion.
China’s central bank reported its biggest monthly increase in gold reserves in more than two-and-a-half years during June, signalling continued official sector demand.
Meanwhile, Hong Kong has launched a central gold clearing system and resumed dollar-denominated gold futures trading as it seeks to strengthen its position as a regional precious metals trading hub. Authorities are also considering introducing yuan-denominated gold futures.
Silver, however, tracked the broader weakness in precious metals, with investors remaining focused on US monetary policy expectations and movements in the dollar.
What lies ahead?
Market participants expect gold prices to remain volatile as investors track geopolitical developments, the US Federal Reserve’s policy signals, the dollar and crude oil prices.
Colin Shah, Managing Director of Kama Jewelry, said gold is likely to stay highly sensitive to these factors in the second half of 2026. While easing geopolitical tensions could keep prices largely range-bound, even minor economic developments could lead to sharp moves. He added that India’s festive season may lend support to physical demand, although consumers are expected to opt for smaller, purpose-driven jewellery purchases rather than large investments.
-With Reuters inputs
