Gold and silver exchange-traded funds (ETFs) experienced notable declines in trading on Monday, influenced by a significant drop in precious metal prices. The decrease was largely attributed to rising bond yields and a heightened likelihood of interest rate hikes by the U.S. Federal Reserve.
As gold and silver ETFs are designed to mirror the prices of the underlying metals, their performance suffered in tandem with the falling bullion values. In afternoon trading, October gold futures plummeted over ₹4,000 per 10 grams, or 2.72%, settling at ₹1,46,784. Silver futures saw an even sharper decline, down ₹8,500 per kg, or 3.61%, to ₹2,26,230.
Ashish Rajodiya, head of commodities at PL Capital, noted that strong selling in U.S. Treasury bonds has pushed the 10-year yield to 5.13%, the highest since 2007, while the 30-year yield reached 5.44%, the highest since 2004. Market indicators suggest a 68.1% probability of a 25-basis-point rate hike at the upcoming Federal Reserve meeting, significantly up from the previous 31.9%. This shift follows strong economic data and inflation worries related to the geopolitical situation surrounding the U.S.-Iran tensions in the Strait of Hormuz.
In the silver market, ETFs fell more than 4%, with prominent funds like the HDFC Silver ETF down by 4.25%. Gold ETFs also declined but at a slower rate, with Axis Gold ETF dropping 3.3%. Analysts caution that ongoing weakness in bullion prices could further impact these investment vehicles, and highlighted critical price levels that must be maintained to avoid deeper declines.
Why this story matters: The potential impact of rising interest rates on precious metals highlights broader economic trends and investor sentiment.
Key takeaway: Continued decline in precious metals could destabilize gold and silver ETFs, following pressures from bond yields and geopolitical tensions.
Opposing viewpoint: Some analysts suggest that typical safe-haven behaviors during geopolitical stress may shift, impacting how investors perceive precious metals.
