Gold prices suffered deep losses on the MCX on Saturday as investors booked profit in the yellow metal at record highs on a stronger US dollar and signs of easing trade tensions between the US and China after President Donald Trump said a 100 per cent tariff on China would be unsustainable.
On the MCX, gold’s December futures contracts dropped by 2 per cent to settle at ₹1,27,320 per 10 grams, while US gold futures crashed over 2 per cent to end at $4,213.30 per troy ounce in the previous session.
Meanwhile, gold has delivered stellar returns this year so far, surging by over 70 per cent in the domestic spot market, on increased global political and economic uncertainties, strong central bank buying, US Fed rate cut hopes, and robust inflows in exchange-traded funds (ETFs).
What is driving gold prices?
In India, gold is perceived not just as an asset class, but also beyond its monetary value as the yellow metal has long been rooted in part of the country’s culture, symbolising security and faith.
Experts say this year, the rally in gold is not because of traditional factors only; to a large extent, this rally has been fuelled by a subtle tectonic shift happening in the global financial system.
“The rally in gold this year is not merely a reaction to traditional risk factors. It reflects a tectonic shift underway in the global financial system: a move away from a US dollar-centric world toward a multi-polar, asset-backed ecosystem,” said Sugandha Sachdeva, Founder of SS WealthStreet.
“In this transition, gold is reasserting its role as a universal currency, one that transcends political agendas and monetary interventions,” Sachdeva said.
Sachdeva underscored that gold and silver are reclaiming their historic role as true stores of value as central banks diversify reserves and global investors turn cautious of endless money printing.
“Gold’s strength has been reinforced by persistent geopolitical risks, US trade policy uncertainty, inflationary pressures, the monetary easing cycle of the US Fed, accelerating de-dollarisation, continued central bank accumulation, strong ETF inflows and the most recent US government shutdown,” said Sachdeva.
Sachdeva underscored that over the past five years, gold has not only preserved wealth but has also delivered a CAGR exceeding 17 per cent. Despite prices hovering near all-time highs, the long-term structural bull run remains intact. Yet, caution is warranted.
“Gold prices appear to be entering overbought territory, with signals of short-term exhaustion. A healthy correction, both in price and time, cannot be ruled out,” said Sachdeva.
“Market participants should prepare for potential pullbacks, especially if key macro variables shift. However, after a brief pause, we still see gold heading towards ₹1,45,000 to ₹1,50,000 per 10gm or around $4,770 per ounce, so buying on dips and in phases seems to be a prudent strategy,” said Sachdeva.
Can gold prices fall more?
There are five major factors that could trigger a correction in gold prices:
1. Stronger US dollar
The dollar index is down over 9 per cent this year so far, staying below the 100 mark since May end this year, and supporting gold prices. Gold is priced in the US dollar, so a weak US currency makes the yellow metal cheaper in overseas currencies.
Experts believe a sustained breakout in the US dollar above 100 could pressure gold.
2. Shift in the US Fed policy
The market is discounting two rate cuts by the US Fed this year. If the US central bank turns hawkish, it will be a serious negative for gold.
“The Federal Reserve has guided toward two rate cuts this year. However, if it pivots to a more hawkish tone, gold could face headwinds,” said Sachdeva.
3. Easing geopolitical tensions
One of the key factors behind gold’s stellar rally this year is increased geopolitical tensions. Experts believe a resolution of the Russia-Ukraine conflict may trigger a sharp correction in gold prices.
“Signs of diplomatic progress, such as ceasefires in the Middle East, or a resolution in the Russia-Ukraine conflict, could reduce the geopolitical risk premium priced into gold,” said Sachdeva.
4. End of US trade disputes
According to Sachdeva, if the US government shutdown ends or trade tensions with China ease, as indicated by the upcoming meeting between President Trump and Chinese President Xi Jinping in the next two weeks, gold’s safe-haven demand may soften.
5. Trump starts selling gold reserve to combat shutdown, trim debt
The US federal shutdown, which began on October 1, continues, and some experts have pointed out a hypothetical scenario in which the US President might start selling gold to combat the shutdown or reduce debt.
“If the US under Donald Trump started selling its gold reserves while global prices are at record highs, the move would have a significant impact on the markets. The immediate and most obvious effect would be downward pressure on gold prices. A sudden or large sale would increase global supply, causing a decline in prices,” said Ross Maxwell, Global Strategy Lead at VT Markets.
“Domestically, the proceeds could help reduce debt or fund spending, but the US would lose a key asset that hedges against currency and market shocks, reducing diversification,” said Maxwell.
However, Maxwell underscored that US gold is held under strict Treasury and Federal Reserve oversight, and significant disposals would require congressional approval and careful execution to avoid market disruption, which makes large-scale sales difficult.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
