RBI tethers rupee near record low even as gold rally adds to headwinds

Analysts at Goldman Sachs pointed out in a Thursday note that INR is among the most vulnerable currencies to a rise in silver and gold prices.

The Indian rupee yet again avoided declining to an all-time low on the back of likely market interventions by the Reserve Bank of India, even as rising gold and silver prices added to the headwinds confronting the South Asian currency.

The rupee was last at 85.70 as of 10:45 a.m. on Friday, up 0.1% on the day and holding above its all-time low of 88.80 set last week.

A surge in gold and silver prices has added to challenges confronting the rupee from ongoing trade frictions with the US and tighter immigration policies in the world's largest economy.

Analysts at Goldman Sachs pointed out in a Thursday note that INR is among the most vulnerable currencies to a rise in silver and gold prices.

"We find that a 20% increase in gold prices should be most positive for Peru, South Africa, and the UK and most negative for Turkey, Hong Kong, and India," the note said.

Gold prices were set for an eighth straight week of gains with spot gold last at $3,968 per ounce while silver rose 0.3% to $49.25 per ounce, easing from the record high of $51.22 hit on Thursday.

The local currency appeared on course to hit a fresh low before the local spot market opened but the pressure was deflected by likely central bank intervention, similar to price action seen in trading sessions earlier in the week.

Gold prices are up over 50% on the year so far while silver has climbed over 70%.

Elsewhere, the dollar index was steady at 99.32 while Asian currencies were trading mixed. The yen was set for its steepest weekly drop in a year on Friday on the back of receding hopes of another Bank of Japan rate hike this year.