Gold prices are witnessing a sharp decline in both Indian and global markets, marking a significant reversal after the strong rally seen in recent years. This fall is not only affecting prices but is also raising questions about gold’s traditional role as a safe-haven asset.
Let us understand this development in detail and what it means for investors.
What’s Happening?
Gold prices have declined by approximately 24% from their record high of $5,417 per ounce. During the June quarter, gold prices fell by around 12%, marking the sharpest quarterly decline since December 2016. The situation is even more severe for silver, which has slipped 17.6% this quarter, the biggest fall since mid-2022, and is now nearly 47% below its all-time high of $117 per ounce recorded in January.
In Asian trading, spot gold fell below $4,100 per ounce, while US gold futures also remained under pressure. The decline highlights the unusual weakness in safe-haven assets despite broader market uncertainty.
Major Reasons Behind the Fall in Gold Prices
Several macroeconomic and market-driven factors are contributing to gold’s recent weakness. The biggest pressure has come from heavy selling in global technology and AI-related stocks, forcing investors to liquidate gold holdings to meet margin calls and liquidity requirements. The technology-led sell-off on Wall Street has further accelerated the liquidation of bullion positions.
At the same time, expectations of tighter monetary policy and the US Federal Reserve’s hawkish stance have strengthened the dollar, reducing the appeal of non-yielding assets such as gold. The dollar index reaching a one-year high has made gold more expensive for international buyers and weighed on demand. In addition, expectations of as many as three rate hikes this year have further reduced gold’s attractiveness, as higher interest rates generally favour yield-generating assets.
Although geopolitical uncertainties remain, easing tensions between the US and Iran and ongoing peace efforts have limited safe-haven demand. Overall, monetary tightening, a stronger dollar, and liquidation pressure from equity markets have collectively weighed on gold prices, while geopolitical developments have not been strong enough to provide meaningful support.
Record Outflows in Gold ETFs and Profit Booking
In May, the Indian gold ETF market witnessed a sharp reversal. Gross redemptions touched a record Rs 3,330 crore, while net outflows stood at Rs 725 crore, marking the first monthly outflow since April 2025. This pressure was largely driven by investor profit booking following the 9% increase in gold import duty, which led to a sharp rise in domestic prices. After a gain of nearly 6%, many investors chose to lock in profits.
During the same period, physical demand for jewellery, bars, and coins remained weak, further reducing investor interest in gold ETFs. As a result, investor folios recorded a decline of 1.34 lakh in May, bringing the total number of active folios down to around 1.23 crore.
Some fund houses also imposed temporary restrictions on large investments, making market flows more controlled. Overall, the data indicates that the recent price rally encouraged investors to book profits rather than make fresh investments, reinforcing the ongoing correction in the gold market.
What Does This Mean for Investors?
This decline serves as an important signal for investors. Over the past two years, gold delivered returns of more than 28% in 2024 and over 65% in 2025, while silver surged by 148% in 2025. The current correction may offer an opportunity for profit booking and portfolio rebalancing, although short-term pressure could continue.
Indian investors should remain cautious despite signs of some recovery in gold ETFs during June following the earlier outflows. While lower prices have attracted some buying interest, the broader environment remains uncertain. Investors should closely monitor the Federal Reserve’s policy decisions, US inflation data, particularly the PCE Index, and movements in the dollar.
What’s Next?
Experts believe that the direction of gold and silver prices in the coming months will largely depend on the US Federal Reserve’s policy stance and the movement of the dollar index. As mentioned in Money Control, according to Deveya Gaglani of Axis Direct, despite easing geopolitical tensions and softer crude oil prices, the Fed’s hawkish stance and the dollar’s rise to a one-year high continue to exert pressure on bullion. As long as the dollar index remains above Rs 100, weakness in gold prices may persist.
Chicago Fed President Austan Goolsbee has also expressed concerns about inflation, indicating that price pressures have not yet eased permanently. As a result, expectations of interest rate relief remain subdued. Market participants are now closely watching the US PCE inflation data. If inflation rises further, the Fed may maintain its restrictive stance for longer, which could keep pressure on gold prices.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
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