Gold price hits 3-month low | Here's why

Gold is highly sensitive to rising short-term US interest rates, which raise the opportunity cost of holding zero-yield bullion.

HIGHLIGHTS

• Gold is highly sensitive to rising US interest rates
• On Multi Commodity Exchange of India Limited (MCX), gold futures were at Rs 50,648
• Gold is used as an inflation hedge
• Gold prices on the international market touched a three-month low. The drop in rates came as an elevated dollar held down prices while investors await US monthly inflation data, which might impact the Federal Reserve's monetary policy stance and demand for bullion.

• Spot gold held its ground at $1,838.55 per ounce, after falling to its lowest since February 11 earlier in the session, as a relatively strong dollar made greenback-priced bullion less attractive for overseas buyers. The US gold futures dipped 0.2 per cent to $1,836.60, according to a Reuters report.

  GOLD PRICE IN INDIA

  On the Multi Commodity Exchange of India Limited (MCX), gold futures were at Rs 50,648.

  While the 22-carat gold price on Wednesday was at Rs 46,750 per 10 gram, the 24-carat gold rate was Rs 51,000 per 10 gram, according to data on goodreturns.

  Readers please note that these rates do not include Goods and Services Tax (GST) and prices vary from state to state.

  WHY GOLD RATE IS DECLINING

  Gold is sitting at a critical price support level of about $1,830 and if inflation is softer than expected, prices might bounce, with investors prioritising the data's impact on the Federal Reserve rather than bullion's role as a hedge, said Ilya Spivak, a currency strategist at DailyFX, Reuters reported.

• If inflation is in line or even a little bit hotter, which is the main risk, gold prices might break lower through $1,800 to the next big test at $1,680, Spivak added.

  Gold is highly sensitive to rising short-term US interest rates, which raise the opportunity cost of holding zero-yield bullion.

  "The problem for gold investors and other commodities that have been used as an inflation hedge is that the Fed will at all costs raise rates to snuff out the inflation fires," said Stephen Innes, managing partner at SPI Asset Management, as per the Reuters report.