MUMBAI: After a record rally of over 70% in rupee terms and over 65% in dollar terms so far this year, the yellow metal fell 6.3%, its worst single-day fall in 12 years, on Tuesday, primarily due to profit booking and a slew of positive news flows which shaved the sheen off the safe-haven metal.
For silver, which rallied 90% in rupee terms and over 80% in dollar terms, the same reasons coupled with increased supply to the markets by the US and China led to a 7.8% plunge in the metal, making it the worst fall since September 2011.
Market men are cautious in offering a level for the metals as of Wednesday citing the two days of exchange shutdowns but are sure of a steeper fall Thursday, reflecting the deeper cuts in the international prices.
Gold slid the most in 12 years after a weeks-long furious rally that sent the precious metal to successive highs, posting as many as 36 new records. But so was the correction -- the “simmering of trade tensions between the US and China was the snowflake which caused the avalanche and reversal of gold’s momentum trade,” according to a Bloomberg analyst.
While on Monday, the yellow metal rallied to scale past $4381.52 an ounce or 28.35 grams, it lost as much as 6.3% the next day. The white metal fell 7.8% % to $48.38 an ounce after rallying 80% for the year to scale past the $52.25 an ounce mark.
A confluence of factors dragged down the precious metals including positive trade talks between the US and China, a stronger dollar, overstretched technicals, and uncertainty on investor positioning coupled with profit-booking along with the end of the three-day Deepavali buying-spree.
“The safe-haven demand for precious metals has cooled somewhat as US president Donald Trump and China president Xi Jinping are scheduled to meet next week to iron out their differences on trade. Also, there is an increasing possibility that the four-week US government shutdown is nearing its end. Gold’s relative strength index indicates that prices have passed well into overbought territory. A strengthening dollar has also made precious metals more expensive for most buyers,” GEPC’s Abdul Nazer told TNIE from Kochi.
The deeper slump in silver prices, after surging almost 80% this year, he said was primarily because of a historic squeeze in the London market, which has been corrected with US and China supplying to the market. The rebalancing was also due to the fact that the benchmark prices are trading above the New York futures, prompting traders to ship metal to London to ease tightness. On Tuesday, silver in vaults linked to the Shanghai Futures Exchange saw the biggest one-day outflow since February, while New York stockpiles have also fallen.
On the positive side, Nazer expects the retail market to gain momentum as it will induce buyers back to the showrooms. Already with the price slump, gold bars are not available at all in showrooms, he said.
Satish Dondapati, an ETF fund manager at Kotak Asset Management Company, told TNIE that the slump in gold was the steepest since 2013 and though several factors contributed to the sharp fall, the main one is profit-taking after an overextended rally of about 25% in just two months.
Additionally, the recent rise in bond yields and a stronger dollar also made gold more expensive for holders of other currencies, reducing demand. Furthermore, easing tensions in trade negotiations and progress towards resolving the government shutdown have diminished gold’s appeal as a safe-haven asset, Dondapati added.
However, he does not see this as a meltdown, saying, “The current significant drop appears to be more of a correction than a severe meltdown. Short-term volatility remains high; when prices climb rapidly, a pullback becomes more likely. Importantly, the fundamental drivers supporting gold remain intact, including ongoing debt concerns, central bank buying, inflation worries, and expectations of further interest rate cuts."
He also notes that recently gold surpassed the euro as the world's second-largest reserve asset trailing only the US dollar. Gold now makes up 20% of global official reserves, while the euro holds 16%. These factors suggest that while prices may fluctuate in the near term, gold’s role as a hedge and store of value continues to hold strong.
On domestic prices, Dondapati is of the view that the exact impact on premium and discounts in the spot market will be clearer in the next one or two days, as the market is currently closed for the Deepavali holidays.
“Although short-term corrections are possible, it is difficult to predict whether gold will fall below Rs 1 lakh per 10 grams in the near future,” he concluded.
Historical background on the gold rally
What stands out the most is that gold’s most recent $1,400 surge happened in barely 212 days. While it took close to 15 years for gold to move from $1,000 to $2,000, the next leap was far quicker, another $1,000 rise that pushed the price to $3,000 within just 14 months by mid-March 2025. And since March, it has jumped another $1,400.
This is not the first time the yellow metal has been red-hot. A direct comparison is the 1979-80 period though a massive price surge also occurred during the Great Depression of the 1930s.
Between 1978 and the early 1980s, global gold prices quadrupled from around $200 to over $850 an ounce. The price drivers were a volatile mix of double-digit inflation, oil shocks, and geopolitical crises including the Iranian Revolution and the Soviet invasion of Afghanistan.
The 1930 spike was due to the Great Depression, which led to the world facing banking collapses and deflation. In 1933, US president Franklin Roosevelt banned private gold ownership and in 1934 revalued gold from $20.67 to $35/ounce under the Gold Reserve Act. This policy shift instantly raised the official gold price by about 70%, one of the largest jumps in history.
Back home, historical data shows that the price of 24-carat gold rose from Rs 937 /10 grams in 1979 to Rs 1,330 in 1980, marking a surge of nearly 45%.
Since 2022, a series of geopolitical factors--from Russia’s invasion of Ukraine to rising US-China tensions, along with the Israel-Hamas war, has shaken financial stability worldwide. Amid this turmoil, gold has re-emerged as a preferred safe haven.
Another bumper is the central banks leading the demand charge by sharply increasing their bullion holdings in recent years. As per the World Gold Council data, they bought 1,082 tonnes in 2022, 1,037 tonnes in 2023, and a record 1,180 tonnes in 2024, which is more than double the earlier annual average of about 500 tonnes. The Reserve Bank alone snapped up close to 100 tonnes during this period with fiscal 2024 being the highest at 57.8 tonnes, the second largest purchase since 2017. Today the RBI holds close 900 tonnes of gold in reserves which is close to 14% of the forex reserves.
The 1930s surge was policy-driven while the 1980 boom was mainly inflation-driven. Today’s rally combines both elements of policy uncertainty and global fear. But unlike in the past, central banks themselves are now among the largest buyers of gold.
That steady institutional demand may act as a pillar for prices even if speculative sentiment cools. Yet, analysts warn that if inflation falls sharply and real rates rise, gold could face a correction similar to 1980 -- when the US Fed chair Paul Volcker sharply raised interest rates to tame inflation (famously known as the Volcker shock), gold’s glory faded. By 1982, prices had fallen by more than 50% from their peak. For nearly two decades, gold languished in a bear market, trading sideways until the early 2000s.
