Gold prices have taken a notable dip after reaching record-breaking levels earlier this week. In just a few trading sessions since Tuesday, the value of gold has dropped by ₹3,900. Market analysts attribute this decline to investor profit-booking following the surge to all-time highs. Adding to the pressure is a strengthening U.S. dollar, which has also contributed to the downward trend in gold prices.
Experts are pointing to easing tensions between the United States and China as another reason behind the fall. With the perception of reduced risk, the demand for gold as a safe-haven asset has diminished significantly.
August Contract Touched ₹1 Lakh Before the Fall
While the MCX June contract fell short of reaching the ₹1 lakh milestone, the August futures briefly crossed that mark. In Delhi, gold rates excluding GST even climbed above ₹1 lakh per 10 grams on Tuesday. However, the recent sharp correction has left investors wondering—could gold drop all the way down to ₹55,000 again?
Futures Market Sees Major Pullback
The Multi Commodity Exchange (MCX) saw gold fall dramatically on Wednesday morning. At around 11:15 AM, the metal was trading at ₹95,536, down ₹1,800 from the previous session. Earlier in the day, gold opened at ₹96,500—already ₹1,000 lower. During intraday trading, it touched a low of ₹95,457, marking a sharp intraday loss of nearly ₹1,900. Interestingly, despite April witnessing a gain of ₹4,700 in gold prices, recent volatility has overshadowed the rally.
Price Correction from Peak Levels
Data shows that just a day before this decline, gold prices had surged to ₹99,358. Since then, prices have slipped to ₹95,457—a drop of ₹3,901 per 10 grams. Analysts believe that the diminishing tension between the U.S. and China and the rising dollar index are key reasons for the fall. Moreover, the U.S. Federal Reserve has not indicated any upcoming rate cuts, removing another support pillar for gold prices.
Forecasts Hint at Further Decline
A recent forecast by financial research firm Morningstar suggests a steep decline in gold over the coming years. Their analysts predict a potential drop to as low as ₹55,000 per 10 grams. This speculation has gained traction again with the latest price dip. With prices still hovering at high levels, experts anticipate more profit booking, especially if physical demand continues to wane.
Safe-Haven Appeal Weakens Amid Market Optimism
The gold market’s recent decline is also tied to positive developments in the U.S. economy. A stronger dollar and rising U.S. stock markets have chipped away at gold’s appeal as a safety net. Former U.S. President Donald Trump recently expressed optimism regarding a new trade deal with China, hinting at significantly lower tariffs in future negotiations. Although formal talks have yet to begin, U.S. Treasury Secretary Scott Bessant has acknowledged that progress may take time.
Technical Indicators Suggest Reversal Is Underway
Ajay Kedia, Director of Kedia Advisory, commented that this is one of the steepest corrections in recent weeks, triggered by improved global trade sentiment. He added that technical indicators show gold prices have entered an overbought zone, typically signaling a potential trend reversal. Ratios like gold-silver, gold-platinum, gold-crude oil, and gold-copper are all at their peaks—suggesting that a correction in gold may coincide with a rise in industrial commodities.
Rising Supply and Lower Demand Could Accelerate Fall
According to the Morningstar report, several factors could lead to a deeper price correction. Gold production has surged, and mining profits hit $950 per ounce in Q2 2024. Global gold reserves are up by 9% to 216,265 tonnes. Australia has ramped up output, and recycled gold is flooding the market. Additionally, central banks that collectively purchased 1,045 tonnes of gold last year may cut back. A World Gold Council survey revealed that 71% of central banks plan to either reduce or maintain their current gold reserves—posing another headwind for prices.
