Gold and silver prices plunged sharply on Monday, extending losses across global and domestic markets as a combination of higher trading costs, fears of aggressive US interest rate hikes, and a stronger dollar rattled investor confidence. The steep fall comes as higher margin requirements on the Chicago Mercantile Exchange (CME) are set to kick in, making trading in precious metals significantly more expensive.
Credits: Free Press Journal
CME Margin Hike Triggers Heavy Selling
The immediate trigger for the sell-off was the announcement of higher margin requirements on the CME, one of the world’s largest derivatives exchanges. Higher margins force traders to put up more capital to maintain positions, prompting many investors to cut exposure. This resulted in widespread liquidation, adding intense selling pressure across gold and silver contracts.
Margin hikes often lead to short-term volatility, but the scale of Monday’s decline highlighted how stretched positioning had become in precious metals after their recent rally.
MCX Gold and Silver See Steep Intraday Losses
The impact was clearly visible in the domestic market. On the Multi Commodity Exchange (MCX), gold February futures fell 1.77 percent during intraday trade to Rs 1,45,132 per 10 grams. Silver witnessed a far sharper correction, with MCX silver March futures tumbling 6.88 percent to Rs 2,47,386 per kg.
Analysts noted that silver’s sharper fall reflects its higher volatility compared to gold, especially after a rapid run-up in prices over the past few months.
Fed Leadership Shift Sparks Rate Hike Fears
The decline in precious metals had begun earlier following reports that US President Donald Trump has selected Kevin Warsh as the next Chairman of the US Federal Reserve. Warsh is widely perceived as more hawkish on interest rates than previous Fed chiefs.
This development revived fears that US interest rates could remain higher for longer or even rise further. Higher interest rates typically hurt gold and silver prices, as these metals do not offer any yield and tend to lose appeal when investors can earn better returns from bonds and other interest-bearing assets.
Strong Dollar and Rising Yields Add Pressure
Adding to the downside was a stronger US dollar and rising US Treasury yields. Positive US inflation data, including the Producer Price Index (PPI) and core PPI, reinforced expectations that monetary tightening could persist.
A firm dollar makes gold and silver more expensive for buyers holding other currencies, dampening global demand. Rising bond yields further weaken the appeal of precious metals, which are often used as inflation hedges but struggle when real yields move higher.
Budget Disappointment Weighs on Domestic Bullion
Domestic bullion prices also faced pressure from policy-related factors. Rahul Kalantri, Vice President (Commodities) at Mehta Equities, pointed out that the Union Budget offered no relief, with import duties on gold and silver left unchanged.
This decision reduced the price advantage for Indian buyers and weakened domestic premiums, adding another layer of pressure to MCX prices at a time when global cues were already negative.
Key Technical Levels to Watch
From a technical perspective, analysts believe gold may find support near USD 4,510 in global markets this week, while silver could see buying interest emerge around USD 68.
In the Indian market, gold is expected to find support between Rs 1,39,650 and Rs 1,36,310, while resistance lies at Rs 1,48,850 and Rs 1,50,950. Silver has support near Rs 2,48,810 and Rs 2,37,170, with resistance seen at Rs 2,78,810 and Rs 2,95,470.
Credits: Mint
Long-Term Outlook Remains Constructive
Despite the sharp correction, experts remain broadly positive on the long-term outlook for gold. Continued central bank buying and its role as a safe-haven asset amid global uncertainties are expected to provide underlying support.
Silver, too, continues to benefit from strong industrial demand and constrained supply. However, caution is creeping in. WhiteOak Capital Mutual Fund has advised investors to reduce exposure to precious metals—especially silver—warning that prices have risen too fast and appear significantly overvalued compared to historical levels.
