Gold and Silver Prices Drop Sharply as Retail Inflation Reaches 22-Month High

Precious metal prices saw a sharp fall on Monday evening across domestic markets, with silver dropping faster than gold. On the Multi Commodity Exchange, gold prices fell by over 1 percent to reach 1,49,159 rupees per 10 grams, making gold cheaper by nearly 2,000 rupees. Earlier on Monday morning, gold had opened at 1,50,056 rupees after falling 1,443 rupees from its previous close of 1,51,499 rupees. Meanwhile, silver prices dropped by roughly 2,500 rupees per kilogram by late evening, falling down to 2,23,000 rupees after starting the day with an opening drop of around 1,400 rupees. According to the India Bullion and Jewellers Association, 24-carat gold stood at 1.48 lakh rupees per 10 grams, while one kilogram of silver dropped to 2.20 lakh rupees following consecutive sessions of decline.

Main Reasons

The drop in bullion values is mainly driven by retail inflation reaching a 22-month high. September retail inflation climbed higher than estimates to hit 5.54 percent, up from 4.82 percent in August. High inflation numbers often prompt central banks to keep interest rates high or delay rate cuts, making fixed deposits and bond yields more attractive than non-yielding assets like gold and silver. Commodity expert Ajay Kedia notes that festive demand in India and China along with central bank purchases could still push prices up toward Diwali, despite the current dip. Silver has seen massive correction this year, trading well below its all-time high of 4,20,048 rupees reached in January.

Context

Precious metals traditionally move inversely to interest rates and inflation expectations in major global economies. When retail inflation rises, the purchasing power of everyday buyers drops, which often affects local retail demand in retail bullion markets during festive and wedding seasons.