After Fed rate pause, experts recommend buying gold, silver on dips

Experts advise investors to avoid aggressive buying and accumulate gold and silver gradually on dips as Fed policy uncertainty keeps precious metal prices volatile

Gold and silver investors should avoid aggressive buying and accumulate the precious metals gradually on declines after the US Federal Reserve’s decision to keep interest rates unchanged, experts said.

 

Although the Federal Reserve kept rates steady, the fact that three officials voted in favour of a rate increase indicated that its fight against inflation may not be over yet. This has revived concerns that interest rates may be raised in September. For gold and silver investors, this has created a fresh dilemma: should they buy now or wait?

 

On the one hand, elevated interest rates and higher US bond yields may put pressure on precious metals. On the other, geopolitical tensions, record purchases by central banks and rising safe-haven demand are providing strong support.

 

 

Impact of Fed decision on gold, silver

 

After the Federal Reserve’s decision to keep rates unchanged, gold and silver were trading over half a per cent higher in the domestic and global markets at the time of writing on Thursday. Silver opened lower but recovered later.

 

Kainat Chainwala, associate vice-president, commodity research, Kotak Securities, said the Fed’s decision had reduced the immediate risk of a rate hike. However, it had also strengthened the view that interest rates could remain higher for longer if inflation stays elevated.

 

For gold and silver, this is a mixed situation, she said. In the short term, volatility may continue as the market reacts to US economic data and geopolitical developments. In the long term, the price trend will depend largely on US inflation, Treasury yields and the Fed’s policy stance.

 

Ajay Kedia, director, Kedia Advisory, said the Federal Reserve’s decision to keep interest rates unchanged was in line with market expectations. This has provided short-term relief to precious metals. However, the Fed has made it clear that its policy will remain data-dependent.

 

The possibility of a 25-basis-point rate increase in September still remains, Kedia said. This could strengthen the US dollar and bond yields, putting temporary pressure on gold and silver. But the long-term outlook for both metals remains positive. Continued gold buying by central banks, de-dollarisation, geopolitical uncertainty and investment demand may support prices.

 

Commodity expert Anuj Gupta said gold and silver prices could remain range-bound with volatility because the possibility of a future rate increase remains amid inflation concerns. This could put pressure on gold and silver prices.

 

What are the next targets?

 

Kedia said the outlook for precious metals remains positive after the Fed decision. If gold sustains above $4,000 per ounce in the global market, it may move towards $4,300 per ounce. In the domestic market, gold on the Multi Commodity Exchange (MCX) may rise to ₹1,44,000-1,45,000 per 10 grams.

 

According to Kedia, silver may rise to $60-61 per ounce on Comex because of a declining gold-silver ratio and strong industrial demand. In the domestic market, silver has the potential to move towards ₹2,25,000 per kg. Silver may outperform gold, aided by improving industrial demand and better valuations, he said.

 

Chainwala said gold may trade in the range of $3,960-4,200 per ounce in the global market in the coming days. In the domestic market, gold may remain between ₹1,40,000 and ₹1,48,000 per 10 grams. Silver may trade in the range of $55-61 per ounce on Comex, while on MCX it may remain between ₹2,00,000 and ₹2,30,000 per kg.

 

According to Chainwala, the next major direction in prices will emerge only after a strong breakout above or below these ranges.

 

Gupta said gold and silver prices could trade in a range because of the possibility of higher rates and the US-Iran conflict. For gold, the key support is at $4,000 per ounce, followed by $3,950. Comex gold may trade between $4,000 and $4,200 per ounce.

 

In the domestic market, gold has key support at ₹1.40 lakh per 10 grams, while resistance is placed at ₹1.45 lakh. Gold on MCX may therefore trade in the range of ₹1.40 lakh to ₹1.45 lakh per 10 grams. For silver, Gupta expects a global range of $54-62 per ounce. In the domestic market, silver may trade between ₹2.10 lakh and ₹2.30 lakh per kg.

 

Is this a buying opportunity?

 

Kedia said investors should not base their investment decision only on the Fed’s latest decision. Although the current policy is positive for gold and silver, the market is still assessing the possibility of a rate increase in September. Short-term investors may be better off waiting for volatility to settle, he said.

 

Long-term investors, however, may use declines as buying opportunities. A staggered investment approach would be better than a lump-sum allocation, he said.

 

Gupta said gold and silver prices had fallen sharply from their highs, creating a buying opportunity for investors. Investors may consider buying for the short term, he said. Gold may move towards $4,300 by Diwali, while silver may rise to $65-70. However, prices could fall again if interest rates are raised in September.

 

Chainwala said investors should remain patient and avoid aggressive buying in the current environment. Long-term investors may gradually accumulate gold and silver on dips instead of chasing rallies. Elevated bond yields and the Fed’s hawkish policy stance may keep near-term volatility high, she said.

 

For short-term traders, it would be better to wait for declines towards key support levels or a clear breakout above resistance levels, she added.

 

Factors that will guide gold, silver prices

 

Chainwala said upcoming US data on gross domestic product, personal consumption expenditure inflation and the labour market would influence the Fed’s future policy. The direction of US-Iran tensions will also be important.

 

If tensions rise and crude oil prices increase, inflation concerns could deepen. This may prompt the Fed to keep rates higher for longer, which could affect gold and silver. On the other hand, if geopolitical tensions ease and inflation concerns moderate, the Fed’s stance may soften, benefiting gold and silver in the medium term.

 

The Federal Reserve’s Jackson Hole speech in August will be the next major trigger, with the market looking for signals on future monetary policy from the Fed chair’s remarks.

 

Kedia said geopolitical tensions could have the biggest impact on the market for now. An escalation in tensions between the US and Iran could push crude oil prices higher, raising inflation risks. This may strengthen the Fed’s case for keeping interest rates higher for longer.

 

Higher interest rates and rising Treasury yields increase the opportunity cost of holding non-yielding assets such as gold and silver, which may weigh on demand for the precious metals.