On the global market, COMEX gold was trading at $4,167.50 an ounce, down marginally by $0.90, or 0.02%, from its previous close. The contract moved between a high of $4,168.60 and a low of $4,145.20 an ounce.
COMEX silver was at $61.165 an ounce, down $0.553, or 0.90%. It touched a high of $61.245 and a low of $60.810 an ounce.
The relatively muted move in early trade comes after a much sharper correction on Monday (September 28). Spot gold had fallen as much as 4% to $4,111 an ounce, its lowest level since August 5, as the rise in US Treasury yields and expectations of further Federal Reserve rate hikes reduced demand for the non-yielding metal.
Why are gold and silver under pressure?
A key factor behind the recent decline has been the sharp rise in US bond yields.
The 10-year US Treasury yield has moved above 5%, with Reuters reporting that it recently reached its highest level since 2007. Higher yields increase the opportunity cost of holding gold, which does not generate interest income.
The rise in yields has also been accompanied by expectations of further tightening by the US Federal Reserve. Stronger-than-expected US economic data has added to those expectations. The September US Composite PMI rose to 58.4 from 56 in August, its strongest reading since July 2021.
The dollar has also remained a headwind for bullion, making dollar-denominated gold and silver more expensive for buyers using other currencies.
According to Prithviraj Kothari, Managing Director at RiddiSiddhi Bullions Ltd. and President of the India Bullion and Jewellers Association, the recent pressure on precious metals has been driven more by interest rates than by a fading safe-haven demand.
Kothari said the firmer dollar, elevated US Treasury yields and stronger economic data have increased expectations of another Fed rate hike, while oil-price volatility linked to the US-Iran standoff has added to inflation concerns.
What does the Iran-US situation mean for gold?
Geopolitical tensions around the Strait of Hormuz are creating a complicated backdrop for bullion.
Normally, geopolitical tensions can support gold through safe-haven demand. However, the current oil-market reaction is also raising concerns about inflation. Higher crude prices can increase inflationary pressure, which in turn can keep interest rates and bond yields higher for longer.
Oil prices rose for a second consecutive session on Tuesday (September 29). Brent crude was around $105.91 a barrel and US West Texas Intermediate crude at $93.32 in early trade, according to Reuters.
Concerns about supply disruptions from the West Asia continued to outweigh signs of recovering crude exports from the region.
Renewed diplomatic efforts between US and Iranian officials are also being watched by markets. Any progress on talks could ease some of the oil-supply concerns, while a prolonged standoff could keep inflation risks elevated.
What should gold and silver investors watch next?
N S Ramaswamy, Head of Commodity & CRM at Ventura, said gold has corrected sharply after its recent rally amid rising US Treasury yields and expectations of further Federal Reserve tightening.
He said markets will closely track US inflation and economic data this week, including Core PCE inflation and final GDP data, along with the non-farm payrolls report. Developments in potential US-Iran talks will also remain important for the near-term direction of precious metals.
For COMEX Gold December, he identified resistance at $4,260 and $4,350 an ounce, with support at $4,130, $4,050 and $4,000 an ounce.
Kothari said spot gold has broken the important $4,250 an ounce support level, with the next downside levels at $4,150 and $4,100 an ounce. He added that central-bank buying could provide some cushion to the market.
What this means for Indian investors
For Indian investors, global gold prices are only one part of the equation. Domestic prices are also influenced by the rupee-dollar exchange rate, import-related costs and local demand.
The sharp correction in global bullion prices therefore does not necessarily translate into an identical percentage fall in Indian gold prices.
-With agencies inputs