Rising inflation and strong dollar weakening gold, know how far the price will go

With China’s growth slowing down and the long-running war between Russia and Ukraine, investors are selling their other assets and investing in dollars. So gold is falling and dollar is getting stronger.

For centuries, inflation-saving hedging tool i.e. gold has now lost its luster. In recent times, the trick of gold has taken everyone by surprise. Despite the rapidly rising inflation in the world gold prices I am not jumping. Traditionally, gold prices rise when inflation rises. This compensates for the loss due to inflation. But this time this trend is completely absent.

Gold prices in India also declined on Friday due to weak demand for gold in the international markets. Gold October Futures on the Multi Commodity Exchange was trading lower by Rs 76 at Rs 49,236 per 10 grams. In the spot market too, gold had closed down by Rs 303 at Rs 50,290 per 10 grams on Thursday. Worldwide, the yellow metal was at a two-year low on Friday.

Why gold prices are not increasing

Why is gold not benefiting from rising inflation this time? The reason for this is the strengthening of the dollar. With inflation reaching 8.5 percent in the US, the US Federal Reserve is continuously increasing interest and the possibility of increasing interest rates again next week is getting stronger. Due to this the dollar index is getting stronger. Dollar Index shows the performance of other currencies against the dollar. Recently, the dollar index has crossed the level of 110, which is a new record in itself. This is the highest level of the dollar index since June 2002.

Why is the dollar so high?

Why is the dollar getting so strong? This is because the uncertainty in the macroeconomic environment has increased. With the rise in inflation, the fear of deepening recession is also increasing. With China’s growth slowing down and the long-running war between Russia and Ukraine, investors are selling their other assets and investing in dollars. So gold is falling and dollar is getting stronger. Bhavik Patel, commodity and currency analyst at Tradebull Securities, says that next week the Federal Open Market Committee will announce interest rates in the US on September 21. Till then gold prices will remain under pressure.

What do experts say

Prathamesh Mallya, AVP, Non-Agri Commodities and Currency, Angel One, says aggressive interest rate hikes have driven more demand for the non-yielding metal. Gold is considered a safe investment in times of economic crisis. Despite this fact people are not buying gold. The reason for this is the rise of the US dollar index, the rise in the US Treasury yield and the high inflation rate in the US. All these together have pushed the people who buy gold out of the market. Gold can go up to the level of 48870 and if there is a break here, then it can touch the level of 48450 even further down.

Ajay Kedia, director of Kedia Commodities, says that last week the inflation figures in America were very bad. Because of this, there is a fear that interest rates in America may increase very much next week. At the same time, due to the fall of rupee, gold has broken the level of 49000 on MCX in the domestic market as well. However, the demand for gold remains constant in the physical market, which will increase further in the festive season. In such a situation, by the end of the year, gold on MCX can go from 48,600 to 48,500 levels.

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