Gold and silver prices witnessed a notable fall across India on Wednesday, reflecting a broader downturn in global bullion markets. The decline is primarily attributed to a stronger US dollar, an uptick in oil prices, and increasing fears that the US Federal Reserve may implement further interest rate hikes. Geopolitical tensions involving the US and Iran have also added to market uncertainty, contributing to the pressure on precious metals.

In India, gold prices dropped by Rs 2,677, or 1.76%, settling at Rs 1,49,766 per 10 grams. Simultaneously, silver saw a sharper decline, falling by Rs 4,347, or 1.82%, to trade at Rs 2,34,181 per kilogram. This domestic slump followed international trends, where spot gold slipped to its lowest level in nearly 11 weeks, trading around $4,181 per ounce after a 1.9% fall. US gold futures for August delivery also decreased by 1.9% to $4,204.70 per ounce.

The primary catalyst for this downward movement is a significant shift in expectations regarding US monetary policy. A strengthening dollar makes dollar-denominated commodities like gold more expensive for international buyers using other currencies, thereby dampening demand. Concurrently, rising oil prices are fueling concerns about inflation, leading investors to anticipate that the US Federal Reserve might maintain higher interest rates for an extended period. Higher interest rates typically diminish the appeal of non-yielding assets such as gold, as bonds and other interest-bearing instruments offer better returns.

Ilya Spivak, head of global macro at Tastylive, highlighted that the decline in gold is predominantly driven by evolving expectations surrounding US monetary policy. “The driver really is the shift in Federal Reserve policy expectations, the rise in yields and the rise in the dollar. I think all of those things are weighing on gold,” Spivak stated. Market indicators, such as the CME FedWatch Tool, now show traders pricing in over a 70% probability of a US interest rate hike by December.

Adding another layer of volatility to the financial markets are renewed tensions between the US and Iran. Recent reports of US strikes against Iran, following an alleged downing of a US Apache helicopter, and Iran's retaliatory actions targeting US military installations, have heightened global uncertainty. These geopolitical developments are prompting investors to re-evaluate the broader outlook for inflation and interest rates.

Kotak Neo Commodity Research noted a broad-based liquidation in bullion markets, driven by investor reactions to robust US labour market data, which further solidified expectations of a Federal Reserve rate hike. The brokerage also pointed to stronger-than-expected US existing home sales and hawkish signals from the Bank of Japan, including potential rate hikes, as additional factors pressuring precious metals. Kotak Neo further observed that gold extended its losses below $4,180 per ounce amidst the US-Iran tensions, emphasizing that markets are now keenly awaiting US inflation data, particularly the Consumer Price Index (CPI), which could dictate future monetary policy decisions.

Looking ahead, gold analysts are closely monitoring the $4,100 per ounce level. Spivak warned that a sustained break below this threshold could signal a significant shift in the broader trend for the precious metal, potentially leading to a further drop towards $3,500 by the end of the year. Other precious metals have also felt the pressure, with spot silver falling 2.1% to $64.01 per ounce, platinum dropping 3.4% to $1,667.92, and palladium down 1.5% to $1,204.24.

In contrast, the broader base metals market presented a mixed picture. Copper remained relatively stable near $13,615 per tonne, buoyed by long-term demand expectations linked to artificial intelligence infrastructure. China's proposed 2 trillion yuan investment in data centre infrastructure underscores AI's growing role as a structural demand driver for copper. However, expectations of tighter US monetary policy and volatility in technology markets may cap near-term gains, while tight zinc concentrate availability and limited aluminium supply continue to support the medium-term outlook for these industrial metals.