Precious metals witnessed intense selling pressure on Thursday following the US central bank's move to tighten monetary policy. Domestic bullion prices reacted sharply to the international cues, dragging benchmark contracts lower on the Multi Commodity Exchange. Gold plunged by over Rs 1,300, while silver shed nearly Rs 2,000 as market participants adjusted their positions in response to climbing benchmark interest rates and persistent volatility across the broader energy complex.
Precious Metals Slump on the Multi Commodity Exchange
Bullion led the decliners during Thursday's trading session on the MCX. The price of gold dropped by more than Rs 1,300 to trade near Rs 1,51,150 per 10 grams, recovering only marginally after touching an intraday low of Rs 1,50,483 per 10 grams. Industrial silver mirrored the decline with even steeper percentage losses. Silver tumbled by nearly Rs 2,000 to hover around Rs 2,32,846 per 1 kilogram, having slumped to an intraday trough of Rs 2,30,221 per 1 kilogram.
Trading across non-precious commodities showed a starkly divided picture. Lead experienced volatile price swings, while crude oil staged a modest recovery from its steep drop in the previous session. Base metals and fuels traded higher, with copper, zinc, and natural gas leading the gainers on the commodity exchange floor.
Federal Reserve Delivers First Rate Hike in Three Years
The immediate trigger for the market downturn was the Federal Open Market Committee's unanimous 12-0 decision to increase the federal funds rate by 25 basis points to a target range of 3.75% to 4%. This decision represents the Federal Reserve's first interest rate hike in three years. Central bank officials also indicated that another rate hike could occur before the close of 2026 as monetary authorities combat persistent inflation worsened by recent spikes in global crude oil prices.
Kevin Warsh, who led the FOMC meeting, emphasized the central bank's commitment to controlling consumer price pressures. Warsh said, "The plain fact is that inflation is too high and has been for too long." Warsh reaffirmed that the committee's immediate focus remains firmly anchored on the price stability pillar of its dual mandate. The monetary tightening decision, however, drew criticism from the White House.
Analyst Insights on Policy Moves and Treasury Yield Pressures
Evaluating the macroeconomic environment, Nachiketa Sawrikar, Fund Manager at Artha Bharat Global Multiplier Fund, observed that financial markets had largely priced in the 25 basis point adjustment. Sawrikar noted that with headline inflation remaining well above the Fed's 2% objective alongside durable economic expansion and a resilient employment backdrop, policymakers had to assert their resolve to bring price growth back under control.
Sawrikar highlighted that the critical challenge for financial markets now centers on the trajectory of long-term borrowing costs. The 10-year Treasury yield has climbed roughly 100 basis points from its February lows, including a 50 basis point surge since July. While acknowledging that higher inflation warranted a yield increase, Sawrikar argued that much of the recent yield spike might have been prevented had the central bank initiated short-term rate hikes earlier in June or July.
International Bullion Prices and Spot Movements
In global trading, spot gold and spot silver had initially jumped by approximately 1% in early Thursday hours, briefly trading near $4,300 and $64 per ounce, respectively. However, gold surrendered those early advances to trade below the $4,300 threshold once investors digested the reality of higher borrowing costs and the potential for further tightening before year-end.
Spot silver also held gains close to 1% before settling slightly below $64 per ounce. The precious metals complex managed to find an underlying floor as energy markets stabilized, easing worries regarding immediate crude oil disruptions in the Middle East and providing breathing room for asset valuations.
Crude Oil Dynamics and Middle East Supply Updates
Energy benchmarks maintained elevated price levels despite modest pullbacks. US WTI crude and Brent crude softened slightly but continued to trade strongly around $102 and $106 per barrel, respectively. These persistent energy price levels have kept inflation concerns elevated across central banks.
Supply constraints in the Middle East showed tentative signs of improvement. Saudi Arabia announced plans to restore approximately half of its East-West pipeline capacity within days, targeting full operational status within six weeks. Adding to signs of maritime stability, US Energy Secretary Chris Wright confirmed that 18 million barrels of crude and petroleum products moved through the Strait of Hormuz earlier this week, reducing immediate transit alarm across global shipping corridors.
