Software shares are in the doldrums. Blame AI

Stocks

Summary:

AI tools that write code are unsettling the software industry, pressuring SaaS business models and stock prices. Salesforce, Adobe, and Atlassian shares have slumped, though analysts debate whether AI threatens or transforms software.

Tech companies are giving the world artificial intelligence — but ironically, the tech sector itself is among those now feeling the most pain from AI.

The rise of AI tools that can write and develop code is clouding the outlook for the software industry, investors say, sending shares in those companies into a slump.

Software as a service, or “SaaS,” is a bread-and-butter business model that is now at risk of disruption because of AI, investors say, a microcosm of how AI could upend the way many businesses operate.

Shares in software giant Salesforce (CRM) are down 26% this year, making it the second-worst performing stock in the Dow.

Meanwhile, Adobe (ADBE) shares are down 19% this year. Shares in Atlassian (TEAM), which owns applications like Trello, are down 30% over the same time.

In comparison, the benchmark S&P 500 is up 10% this year, while the tech-heavy Nasdaq Composite is up 11%.

“Software valuations remain under pressure from the ‘death of software due to AI’ narrative, which likely drives continued volatility in the short term,” Matthew Hedberg, a software research analyst at RBC Capital Markets, said in an August 12 note.

Hard times for software companies

The market is reckoning with a paradigm shift in software and tech, according to Ted Mortonson, a technology strategist at Baird.

Software businesses that have been darlings of tech in past years are at risk of falling out of fashion with investors while AI models continue to develop and get better at writing code.

The traditional SaaS business model includes renting software to customers. But the rise of “agentic AI,” or an AI tool that can operate without supervision, is opening the door for companies to cut back on that rental model, Mortonson said.

Agentic models can write and develop code, encapsulated by the term “vibe coding.” If that can help companies develop their own software, it could threaten established software firms’ seat count or number of subscriptions.

“The volatility on this technology pivot to agentic is nothing I have seen in my career, and it’s happening so quickly,” Mortonson said. “Your seat count is under pressure, which is the kiss of death for SaaS.”

Companies might have anticipated this shift — but likely didn’t see it happening so fast, analysts say.

“Software right now is under massive pressure because AI is eating their lunch,” Dan Ives, global head of technology research at Wedbush Securities, said. “Adobe and Salesforce, among others, miscalculated how quick the AI revolution was going to eat into their market share.”

Salesforce did not respond to a request for comment. Adobe and Atlassian declined to comment.

Is AI eating software?

Marc Andreessen, the venture capitalist and technology investor, famously wrote in 2011 that “software is eating the world.”

Jensen Huang, chief executive at Nvidia, said in 2017 that “software is eating the world, but AI is eating software.”

Ben Reitzes, head of tech research at investment firm Melius Research, said in a note that he thinks Huang’s view is proving true.

“The world is coming around to the reality of the theme that ‘AI is eating software,’” Reitzes said.

“AI is making it clear that almost anyone from an able-bodied startup, to a big cloud (like Google) can create an application so great — that it can compete quickly and potently (like the cloud competed quickly with Dell),” he said in an August 10 note.

One of AI’s biggest cheerleaders, OpenAI CEO Sam Altman, earlier this month posted on social media: “entering the fast fashion era of SaaS very soon.”

Software companies also face competition from the big tech giants. Companies like Microsoft (MSFT) and Oracle (ORCL) are expanding their AI capabilities.

Microsoft CEO Satya Nadella said on his company’s earnings call in July that a shift is taking place: “AI is driving a fundamental change in the biz apps market as customers shift from legacy systems to agentic business applications.”

“AI, in many respects, has disrupted this traditional software subscriber-based model,” said Angelo Zino, a tech analyst at CFRA Research.

However, Zino said it’s less certain whether AI is going to replace software.

“There’s definitely concerns out there,” Zino said. “The best way to put it is that the jury is still out in many respects.”

There are some doubts on the value of AI and whether it will provide a meaningful shift away from legacy companies like Adobe that have built long-time subscriber bases.

“There’s a threat to the model, but there are also still opportunities for these companies to prosper and adapt in this changing environment,” Zino said. Salesforce, for example, has its own AI agent tool called “agentforce.”

In a slump

Wall Street is uncertain whether AI will truly be able to replace SaaS. But shares in software companies have slid this year as investors have tried to mitigate losses in their portfolios.

“For now, they’re missing the train,” Ives said. “I believe software is going to rebound, and they’ll find their way out of this to monetize and participate in the AI party.”

Brent Thill, an equity analyst at Jefferies, said in a note that he thinks software AI fears are overblown.

“AI is a transformational wave, not a destructive hurricane for software,” he said.

Thill, who said he recently met with partners at Salesforce, said they are seeing some headwinds due to AI but believes they will ultimately rebound.

“Partners agreed that fears are overblown on AI replacing software, with many highlighting the shortcomings of vibe coding,” he said.

AI’s impact on the market can shift rapidly, Ross Mayfield, an investment strategist at Baird, said. It was just seven months ago when Chinese upstart DeepSeek caused a reckoning in Silicon Valley. But it did not last.

“The macro can change, the AI picture can change,” Mayfield said. “There’s a lot that can move quickly.”

“If you think you know what the AI landscape is going to look like 12 months from now, there’s a lot of assumptions that should probably be challenged because of how quickly this is moving,” Mayfield said.

Source :cnn

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Adam

Economic

What happened last week

Russia-Ukraine conflict: The US-Russia summit in Alaska ended without a ceasefire, as Putin demanded Ukraine cede eastern territories. Despite no formal deal, the US is facilitating bilateral meetings between Putin and Zelenskyy. US and European leaders agreed to pursue security guarantees for Ukraine. WTI crude oil advanced 1.4% as markets await clarity on the situation.

UK inflation surprise: Headline inflation rose to 3.8% year-on-year (YoY) in July, surprising markets. The increase was mainly driven by higher air fares, masking broader disinflation and creating a policy dilemma for the Bank of England (BoE). Goods prices fell month-on-month, and only 36% of the Consumer Price Index (CPI) basket exceeding 2.5%.

Fed's dovish pivot: Chair Jerome Powell expressed willingness to lower rates in September during his Jackson Hole address, citing labour market risks. Equities and Treasuries rallied sharply, with the S&P 500 surging 1.5% on Friday as September cut probability rose from 75% to 89%.

China market optimism: Mainland Chinese stocks posted strong gains on US-China trade truce extension. Investors rotated from cash and bonds into equities. The onshore CSI 300 Index rose 4%, while the Shanghai Composite Index closed at its highest level in a decade.

Markets in focus

US sector rotation gains momentum

Although the S&P 500 declined for five consecutive sessions before Friday's Powell-driven rebound, weakness concentrated in mega-cap technology stocks. NVIDIA and Meta declined as much as 6% intraweek. Cyclical sectors, including Real Estate, Energy, Materials, and Financials led market gains, generating over 2% weekly returns despite the S&P 500's modest 0.3% weekly advance. The Dow Jones benefited from this sector rotation, finishing 1.5% higher for the week.

Corporate earnings from major retailers captured investor attention. Home Depot and Lowe's surged over 4% following robust quarterly results, demonstrating consumer resilience in small-scale home improvement spending. Conversely, Walmart declined 3% after missing earnings expectations and cautioning about cost pressures from elevated tariff rates.

Despite recovering 25% from April's trough, the Wall Street Index's rebound magnitude remains significantly below the US Tech 100's 43% advance. The ongoing sector rotation may provide additional upside potential for the blue-chip index. Technical analysis reveals an Elliott Wave pattern, with price action since 31 July resembling Wave 5. A 61.8% Fibonacci extension of Waves 1 and 3 combined suggests an optimistic price target of 48,578. However, the index must first overcome resistance at the ascending channel's upper boundary near 47,000. Any pullback should find support at the 20-day moving average (MA) at 43,146.

Figure 1: Wall Street Index (daily) price chart

Market navigator: week of 25 August 2025_1

as of 25 August 2025. Past performance is not a reliable indicator of future performance.

Surge in HIBOR constrains Hang Seng performance

Hong Kong's one-month Hong Kong Interbank Offered Rate (HIBOR) rebounded sharply from approximately 0.9% to 2.9% last week as the aggregate balance in Hong Kong's banking system contracted to HK$53.7 billion following Hong Kong Monetary Authority intervention to prevent HKD weakening beyond HK$7.85 per USD.

The sharp increase in borrowing costs dampened investment appetite, particularly affecting investors utilising margin accounts or leveraged strategies. Consequently, the Hang Seng Index advanced only 0.3% despite the robust rally in onshore markets.

Technology stocks led gains as investors positioned for increased demand for domestic semiconductors amid exponential artificial intelligence growth and reports that Chinese authorities have discouraged use of NVIDIA's H20 chips on national security grounds. Corporate earnings also drove market movements, with Pop Mart shares reaching a record high of HK$328 after the Chinese toy manufacturer reported nearly 400% net profit growth, driven by surging global demand for its Labubu products.

From a technical perspective, 25,750 has established itself as a key resistance level for the Hang Seng Index. Should the index breach this threshold, it will encounter major resistance at 26,300 — a level that proved formidable during 2021. The Relative Strength Index (RSI) warrants close monitoring as early signs of bearish divergence emerge. Should the RSI peak below 64 in upcoming sessions, this would signal diminished price momentum, potentially driving the index toward 24,626 near the 50-day moving average.

Figure 2: Hang Seng Index (daily) price chart

as of 25 August 2025. Past performance is not a reliable indicator of future performance.

AUD/USD under pressure from regional headwinds

AUD/USD declined 0.4% last week, closing at 0.6485 as weak Chinese economic activity and spillover effects from the dovish Reserve Bank of New Zealand rate cut weighed on the Australian dollar. Chair Powell's Jackson Hole address pressured the USD, enabling AUD/USD to recover from Thursday's low of 0.6412. The Reserve Bank of Australia's (RBA) August meeting minutes, scheduled for Tuesday, and Wednesday's monthly inflation indicator will determine the currency pair's near-term direction.

Technical analysis shows AUD/USD briefly fell below its ascending channel on Wednesday, risking a test of the 200-day moving average at 0.6380. While Friday's recovery restored the pair within the ascending channel, sustained momentum above the 20-day moving average at 0.6492 is required to rebuild confidence in AUD/USD's gradual ascent toward 0.67. Immediate support is positioned at 0.6450, followed by 0.6386.

Figure 3: AUD/USD (daily) price chart

as of 25 August 2025. Past performance is not a reliable indicator of future performance.

The week ahead

This week presents a critical assessment of global economic momentum and inflation dynamics, with high-impact data releases and corporate earnings influencing market sentiment.

In the US, focus centres on the Fed's preferred inflation measure — the core Personal Consumption Expenditure (PCE) Index, which will provide essential input for the Fed's interest rates decision on 17 September. Personal income and spending data, released alongside the PCE, will further clarify consumer resilience.

Recent inflation reports revealed core CPI growth of 0.3% month-on-month (MoM), while the Producer Price Index (PPI) surged 0.9% monthly, driven by services sector inflation. Producer prices recorded their sharpest monthly increase since March 2022, significantly exceeding expectations as businesses adjust pricing to accommodate higher tariff-related costs. This development raises the possibility that the forthcoming core PCE reading may exceed the market consensus of 0.3% MoM.

China's manufacturing sector faces scrutiny on Sunday with the release of the official Purchasing Managers' Index (PMI) for August. Particular attention will focus on the manufacturing component, which has remained in contractionary territory since April. Investors will analyse the data for insights into the impact of uncertain US-China trade policy developments.

On the corporate front, NVIDIA is scheduled to report quarterly results after market close on Wednesday, 27 August, with analysts anticipating revenue of $45.8 billion (representing 52% YoY growth). These results will prove pivotal for technology sector sentiment, particularly regarding whether continued artificial intelligence enthusiasm can justify elevated valuations.

Concurrently, China's earnings season reaches its climax. Alibaba will announce June quarter results on Friday, while other prominent names including BYD, Meituan, and major Chinese banks are expected to release results, providing insights into consumer trends, industrial performance, and financial sector health.

Figure 4: US consumer and producer price trends

Source: ig

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

James Whitman

Economic

Bond

US Treasuries slipped ahead of a series of government bond auctions this week, pulling back from the rally unleashed Friday when Federal Reserve Chair Jerome Powell indicated that interest rate cuts may come as soon as next month.

Yields were up by one to three basis points across tenors Monday morning in New York, with the benchmark 10 year’s rising to about 4.28%. The market tracked a similar move in European government bonds, led by France, where 10-year yields were up seven basis points as the prime minister said he would call for a vote of no confidence on Sept. 8.

The US pullback ate away at some of the gains that came when Powell used his speech at Jackson Hole, Wyoming, to indicate a rate cut may be warranted to support the labor market. In response, traders increased wagers on a reduction at September’s meeting and Wall Street strategists said to expect a steeper yield curve — a typical reaction to a more dovish Fed.

Some strategists, however, warned that any move will depend on upcoming releases on inflation and the labor market.

Fed officials “are going to keep a very, very close eye on the data,” Gennadiy Goldberg, head of US rates strategy at TD Securities, told Bloomberg Radio. “This cutting cycle breaks the mold of most cutting cycles.”

Even with Powell’s pivot, there’s the possibility of a repeat of last year, when the Fed started easing policy, only to stop in January when the economy kept exhibiting surprising strength.

Futures traders don’t see a quarter-point cut at its Sept. 17 interest-rate decision as a sure thing, pricing in the odds at around 80%. They are pricing in two cuts by the end of the year.

This week, demand for Treasuries will get a fresh test as the government holds auctions for a combined $183 billion of two-，five- and seven-year notes, with the first sale scheduled for Tuesday.

On Friday, investors will also get a read on inflation when the personal consumer expenditure index — which is the Fed’s favored inflation gauge — is released for July.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Thomas

Commodity

Russia-Ukraine Conflict

MOSCOW, Aug 25 (Reuters) - Ukraine has stepped up drone attacks on Russian oil refineries and exporting infrastructure, striking the most important sector of President Vladimir Putin's economy to show it can fight back as the United States seeks to broker a peace deal.

The attacks disrupted Moscow's oil processing and exports, created gasoline shortages in some parts of Russia and came in response to Moscow's advances on the front lines and its pounding of Ukraine’s gas and power facilities.

Kyiv's move is an attempt to raise the stakes in possible peace talks and challenge the idea that Ukraine has already lost the war after U.S. President Donald Trump and Putin met in Alaska this month, analysts have said.

Ukrainian attacks on 10 plants disrupted at least 17% of Russia's refinery capacity, or 1.1 million barrels per day, according to Reuters calculations.

The drone war has pushed more crude towards exports from the world's No.2 oil exporter at a time Washington is pressing China and India to reduce purchases of Russian oil.

The refinery hits come as Russia's seasonal demand for gasoline from tourists and farmers peaks.

Russia had tightened its gasoline export ban in July to deal with a spike in domestic demand even before the attacks.

There were shortages of gasoline in some areas of Russian-controlled Ukraine, southern Russia and even the Far East, forcing motorists to switch to more expensive petrol due to shortages of the regular A-95 grade.

"We will endure, but this is a big hit to our family budget, a big hit. It's really noticeable," said Svetlana Bazhanova, a resident of Sevastopol, the largest city in Crimea which Russia annexed in 2014.

TOURISM DEMAND

Russia's far eastern port of Vladivostok saw long car queues at gasoline stations, according to a Reuters reporter. The shortages are due to a seasonal influx of tourists, local authorities said.

The affected refineries have lost only part of their capacity but this could still create problems with domestic fuel supplies, said Sergei Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center, who previously worked at Russian oil major Gazprom Neft.

Russia relies on oil and gas exports for a quarter of its budget revenues, which are funding a 25% rise in defence spending this year to the highest levels since the Cold War.

Western sanctions have forced Moscow to sell oil at discounts and stop gas sales in most of Europe. This has not deterred Moscow from producing record numbers of artillery and weapons, according to U.S. military generals.

The war in Ukraine has become a battle of attrition with both Russia and Ukraine using drones and missiles to strike far behind the front lines to damage each other's economies.

So far, Russia's economy has coped with the sanctions but growth has slowed raising concern in the Kremlin.

In the past month, Ukraine has attacked Lukoil's Volgograd, Rosneft's Ryazan and a host of other plants in the Rostov, Samara, Saratov and Krasnodar regions.

A fire at Russia's Novoshakhtinsk refinery was still burning on Monday after a Ukrainian drone strike.

Ukrainian drones also attacked the Druzhba pipeline and Novatek's (NVTK.MM), opens new tab Ust-Luga export terminal and fuel processing complex on the Baltic.

Source: Reuters

Risk Warnings and Disclaimers

Add to Favorites

Adam

Forex

At the end of last week, the US dollar dropped sharply after Fed Chair Jerome Powell hinted at a possible rate cut during his Jackson Hole speech. By stressing the risks in the job market, Powell signaled that the Fed is now focusing more on protecting employment than fighting inflation.

This pushed market expectations for a 0.25% rate cut in September up to 85%, and the US Dollar Index (DXY) fell to its lowest level in four weeks. While the decline has paused at the start of this week, upcoming key economic data will likely decide the US dollar’s next move.

Fed’s Position: Dovish Tilt With a Data-Dependent Path

Powell’s comments suggest the Fed is done with raising rates and is moving toward starting a rate-cut cycle. Still, the speed of those cuts will depend on upcoming data. Fed officials remain split — some are still focused on inflation risks, while others are more concerned about slowing job growth. Overall, this points to a gradual path of easing rather than just a single rate cut in September.

This week, markets will be watching two key releases closely: core PCE inflation and GDP data.

If PCE comes in lower than expected, it would give the Fed more room to cut rates, making a September move more likely and putting pressure on the US dollar.

If weekly employment data shows a sharp slowdown, it would back Powell’s concerns about jobs and could trigger further US dollar selling.

On the other hand, if the data is strong, markets may believe that while a September cut is possible, the Fed will hold back on making further cuts this year. That could help the US dollar recover its recent losses.

Adding to this, political pressure from the Trump administration on the Fed, along with trade policies, may inject more volatility into the US dollar. If markets see Fed independence at risk, investor sentiment could sour further.

Risk Appetite in Focus: Tracking US Dollar Trends

Dovish Scenario (weak data, stronger rate-cut expectations): If the data is weak, the US dollar index could stay below 97. Risk appetite would rise, boosting developing country currencies and stock markets. The EUR/USD and GBP/USD could also keep gaining against the US dollar.

Neutral Scenario (mixed data, limited rate cuts): If the data is mixed, the US dollar might recover recent losses and move back toward 98. Markets would see short-term swings, but overall risk appetite would remain intact.

Hawkish Scenario (strong data, cautious Fed): If PCE and GDP are stronger than expected, markets may think the Fed will cut rates more slowly. The US dollar could strengthen sharply, risk appetite would fall, equities might face selling pressure, and emerging market assets could weaken.

Powell’s comments point to short-term pressure on the US dollar as markets price in a dovish Fed, but upcoming macro data will ultimately decide its longer-term direction.

US Dollar Technical Outlook

The US dollar index (DXY) dropped to 97.56 after Powell’s speech, its lowest level in four weeks, before edging back to around 97.85 as the new week begins.

On the downside, 97.50 is now a key support level. If daily closes fall below this, the index could quickly slide toward the 96.25–96.55 zone, especially if PCE data comes in weak.

On the upside, 98.5 is the first resistance. A break above this would open the door to 99.70, a more critical resistance area. But for that to happen, the market would need strong macro data that supports a “cautious Fed” outlook.

The US dollar’s short-term weak outlook, following Powell’s dovish tone, is still in place. If the index falls below 97.50, selling pressure could intensify; a move above 98.50 would confirm a short-term recovery. This makes upcoming macro data critical for deciding the next direction.

For now, dovish Fed rhetoric is keeping the US dollar under pressure, which is boosting risk appetite in markets. The euro and sterling have been the main beneficiaries of US dollar weakness in recent weeks, and this trend could continue if data stays weak.

Emerging market currencies may also get short-term support, but lasting gains are unlikely until the Fed’s rate-cut path becomes clearer. Among them, currencies with higher interest rate advantages could stand out more during periods of US dollar softness.

On the bond side, falling U.S. 10-year yields are helping support risk appetite. If yields keep dropping, stock markets could see broad-based buying. But if the US dollar rebounds on strong macro data, yields may rise again, leading to profit-taking in equities.

In short, the US dollar’s direction in the coming days will depend on the data, while investors will be asking how sustainable the current risk appetite really is. Weak data could keep risky assets in demand, while strong data may shift momentum back in favor of the US dollar.

Source: investing

Risk Warnings and Disclaimers

Add to Favorites

Samantha Luan

Economic

Forex

Political

This year’s recommendation for vacation reading is a fascinating exploration of the sources of rising political polarization in the U.S. and how it can be addressed.It is that time of year again, when summer deepens in the northern hemisphere, and many of us can take some time away from the office to recharge and hopefully pick up a good book.Such a break feels particularly important this year as market-moving headlines—from trade policy to geopolitical shocks, from growth concerns to inflation risks—have battered investors with exhausting frequency.

In past summer reading blogs, we have shared works on innovation, courage in the face of crisis, globalization, tech disruption, and reconsidering and improving thinking processes. Given the variety of issues we have contended with this year, many of our previous suggestions would be worth reading for the first time or afresh, but this time we turn to the topic of political polarization.

Political Polarization

Underlying much of the volatility this year has been uncertainty on whether we are on the cusp of a regime shift in the role of government in society, often framed in terms of fiscal vs. monetary policy, executive vs. legislative responsibility, and the relationship of the U.S. with its key allies and partners.The heated debates around these important issues are highlighting the increasing polarization of political discourse, a challenge that stalks the U.S. as well as many countries around the world. Indeed, such is the topic’s pervasiveness, we regularly include it in our list of key risks facing market participants, right up there with de-globalization and military conflict.

In our summer reading selection, Love Your Enemies: How Decent People Can Save America from the Culture of Contempt, the Harvard University economist and former head of the American Enterprise Institute, Arthur Brooks, grapples with the sources of rising polarization in the U.S. and how it can be addressed.Driving this division is what Brooks calls the “outrage industrial complex”—cable news, social media and entertainment—which ultimately pits American against American, creating a “culture of contempt”.

Brooks begins his recommendations by explaining that we must first remove contempt from our interactions. If we become contemptuous of people with whom we disagree, we have severely limited our ability to engage in dialogue and gain understanding. He also notes that feeling contempt makes people unhappy, in general.Once we have moved past contempt, Brooks makes a radical proposal: that we aim higher than mere civility or tolerance for those with opposing viewpoints, but rather to be grateful for people who disagree with us. He asserts that engaging with competing ideas leads to the important benefit of being able to refine and deepen our own insights.

This insight echoes a key learning from our 2021 summer read, Think Again, by Adam Grant, who counsels that we should embrace “the joy of being wrong” because having the humility to do so will allow us to challenge our own thinking and make better decisions.

Lessons for Investing

In reflecting on Brooks’ proposed approach, these insights can both be applied to improve political discourse as well as sharpen investment decision-making.

Brooks makes three key recommendations that can be applied here:

● First, get out of echo-chambers or bubbles.

● Second, willingly seek out those with different ideas; this is especially important in investment decision-making, where engaging a broad set of views, perspectives, backgrounds and thinking styles can make decisions more robust.

● Third, be grateful for those who disagree with you: their different outlook is a gift that can provide you deeper insight and gratitude has been shown to make people happy.

A final point from Love Your Enemies that resonates in the current environment is that ideas are like the climate: long-term and immutable, while politics is like the weather, unpredictable and changing all the time. If you can, therefore, try and look past the daily political weather, it should always be possible to have a constructive discussion about important ideas, particularly those impacting the world around us.This framework brought to mind another key learning, this time from our very first summer read, Tolstoy’s War and Peace, which highlighted the importance of humility and of maintaining a long-term perspective.

Humility tells investors to be wary of investment decisions based on apparent certainties, and to diversify. Maintaining a long-term view enables investors to filter out short-term noise and focus instead on the underlying trends that are truly driving markets.In today’s environment, where short-term noise has been particularly cacophonous and elevated uncertainty looks likely to continue, we believe these lessons can be particularly relevant.

Source: Neuberger Berman

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Adam

Commodity

Gold (XAU) prices in India rise when the Indian rupee (INR) weakens against the US dollar (USD), even if international bullion markets stay flat. The reason is simple: India is a net importer of gold, and nearly every ounce consumed is paid for in dollars.

Let’s examine gold’s correlation with INR in detail.

Rupee vs. Dollar Impact on Gold: Detailed Outlook

India consumes 700–900 tonnes of gold a year, but produces barely 1–2 tonnes. The shortfall is filled through imports.

According to commerce ministry data, gold imports in FY 2024–25 touched $58 billion, up 27% from $45.5 billion the year before, making it one of India’s largest import items after crude oil and electronics.

Gold Price: How Rupee vs Dollar Moves Drive The Precious Metal in India_1

Gold imports to India since 1995

Because these imports are dollar-denominated, the USD/INR exchange rate directly shapes local prices.

A weaker rupee, for instance, makes imported gold more expensive; a stronger rupee brings relief. The five-year chart below shows this clearly.

Gold in US dollar terms (XAU/USD; red) rose about 71.6%, while gold in Indian rupees (XAU/INR, purple) climbed nearly 100% in the past five years.

USD/INR, XAU/INR, XAU/USD 5-year returns

Over the same period, the rupee lost about 16.5% against the dollar (USD/INR; green).

The result: domestic gold prices outpaced global prices because of currency weakness.

How Does Gold Price Impact Demand in India?

When the rupee weakens, jewelry demand tends to soften, though weddings and festivals still drive purchases. Investment demand, however, often rises, as households use gold to protect against inflation and currency depreciation.

On the other hand, a stronger rupee makes imports cheaper, encouraging jewelers to stock up and giving consumers steadier prices.

Recent data underlines this connection:

FY 2024–25: Imports surged to $58 billion, widening the trade deficit.

June 2025: Imports fell to a five-year low of 204 tonnes ($1.84 billion) as high prices curbed demand.

July 2025: Imports rebounded to $4 billion (42–48 tonnes) ahead of the festive season.

July 2025: Gold ETFs recorded a 14% jump in holdings year-to-date, with over $1.10 billion in inflows.

Gold Price: How Rupee vs Dollar Moves Drive The Precious Metal in India_3

Gold ETF demand by country

Policy changes have also shaped flows.

When the government cut the import duty from 15% to 6% in 2025, official imports rose 8% year-on-year as smuggling slowed. The duty cut narrowed the global–domestic price gap, but the rupee-dollar exchange rate remained the key factor determining local prices.

Multi-Commodity Exchange’s Key Role: Why MCX Gold Price Today Matters?

For Indian buyers, the MCX gold price today is the most direct gauge of gold in INR. Since contracts are quoted in rupees, they capture both global bullion moves and the rupee–dollar exchange rate.

That’s why MCX prices often diverge from the global XAU/USD chart. A weaker rupee makes MCX gold rise faster than international benchmarks, while a stronger rupee cushions local buyers.

The chart shows this clearly. As of August, XAU/USD gained about 25% year-to-date, but XAU/INR and MCX gold rose closer to 30%.

Gold Price: How Rupee vs Dollar Moves Drive The Precious Metal in India_4

MCX gold price in India vs other XAU benchmarks.

The difference comes from currency depreciation. Even with flat global prices, MCX contracts climb if USD/INR moves higher.

For households, traders, and policymakers, this makes the MCX ticker the daily benchmark, reflecting India’s currency outlook and import costs.

Gold Price Prediction 2025: Are MCX Gold INR Forecasts Any Bullish?

As noted, Gold’s price and MCX Gold rates in India highly depends on how rupee vs. dollar performs.

USD/INR Outlook: Consensus Favors Weaker Rupee vs. Dollar

Most forecasts suggest the rupee will face modest depreciation through late 2025, keeping upward pressure on MCX gold.

MUFG’s rupee vs. dollar forecast is bearish, seeing USD/INR climbing toward ₹88.50 by year-end, citing persistent external deficits and reduced central bank support.

NAGA offers a similar view, projecting ₹88.00 in Q1 and ₹88.50 by Q4 2025, driven by weaker interventions and global volatility. Even a Reuters-compiled consensus leans bearish, expecting the pair to be around ₹87.40 by December 2025, implying subdued but steady rupee weakness.

Not all analysts agree. BofA Global Research forecasts a stronger rupee at ₹84 by December 2025, underpinned by better capital inflows, tax reforms, and a softer US dollar backdrop.

Gold Price: How Rupee vs Dollar Moves Drive The Precious Metal in India_5

USD/INR weekly performance chart.

If this scenario plays out, it could ease local gold prices in INR terms despite global firmness.

In short, while the balance of opinion points to a weaker rupee—and by extension, a bullish tilt for MCX gold in INR—currency strength on policy or inflow surprises remains a key counterweight.

Gold Price Forecasts in India: How High or Low Can XAU/INR Rates Go?

Analysts globally see gold retesting its $3,500 record high by year-end.

UBS and Bank of America are similarly bullish, targeting $3,500 an ounce, supported by growing geopolitical tension and robust central bank buying.

Gold Price: How Rupee vs Dollar Moves Drive The Precious Metal in India_6

Meanwhile, Ventura Securities projects a bold rally to $3,600 an ounce, citing mounting economic headwinds and safe-haven demand.

Translating to XAU/INR terms: assuming a USD/INR rate of ~₹88 by year-end, a $3,100 gold price translates to approximately ₹8.6 lakh per 10 grams.

At a $3,500 gold price, that rises to around ₹9.7 lakh per 10 grams. If gold hits $3,600, the XAU/INR benchmark nears ₹10 lakh per 10 grams—echoing local expectations, such as projections of gold rallying to ₹1.10 lakh per 10 grams within a year in India.

In a nutshell:

Base-case scenario (Gold ~ $3,100): XAU/INR ~ ₹8.6 lakh/10g.

Mid-range bull case (Gold ~ $3,500): XAU/INR ~ ₹9.7 lakh/10g.

Strong bull scenario (Gold ~ $3,600+): XAU/INR ~ ₹10+ lakh/10g.

In short, XAU/INR may comfortably move into the ₹8.5–10 lakh per 10g range by year-end, depending on how global bullion prices and USD/INR trends evolve together.

MCX’s Gold to INR forecasts may follow a similar upside, given its strong positive correlation with the broader spot gold market trends.