Gold’s Bull Run Fizzles Out: A Closer Look at the Factors Behind the Crash
After scaling a fresh high in the beginning of the week, gold prices have corrected sharply. On Tuesday, Bloomberg spot Gold has plunged 6.3% to $4,082.03 an ounce, marking the biggest drop since 2013. The bullion held the losses throughout the week and ended at $4,113.05, which indicated $138.77 weekly drop was among the largest ever, Bloomberg reported.
Top Three Factors Behind the Gold Price Crash
Several factors have contributed to the sharp decline in gold prices. Here are the top three factors that Indian investors should be aware of:
- Overbought Conditions: Many analysts and brokerages warned that the precious metal is overbought. Following an almost 30% surge in the bullion prices, gold specialists expected a drop in the prices. To learn more about gold investment strategies, click here.
- Profit Booking by Hedge Funds: Hedge funds likely have booked profits noting the recent record rally in bullion prices, as reported by Bloomberg. Some traders also suspected that Chinese banks might have sold the precious metals, which weighed on the prices. For insights on hedge funds in India, visit our website.
- Decrease in Central Bank Purchases: JPMorgan believes that the biggest risk to bullion’s value is a likely decrease in purchases of gold from major central banks across the globe, Bloomberg reported. To understand the impact of central bank policies on gold prices, read our expert analysis.
How to Place Bets in the Gold Market
Option traders have increased their put options bet on the Gold, Bloomberg reported. Many analysts believe that the recent rally is driven by gold purchases by the central banks. The buying from the central banks increased the most when sanctions on Russia were imposed in 2022. For a comprehensive guide on options trading in India, click here.
Volatility to Persist in Gold Prices
Analysts believe that volatility will exist in gold prices for the near term. The bias is slightly negative until further clarity emerges on the macro side. “In the near term, gold is likely to remain volatile due to uncertainty surrounding global trade policies and uncertainty over the U.S. shutdown. However, in the medium to long term, the key structural drivers for gold remain intact — including elevated global debt levels, persistent central bank demand, and ongoing geopolitical and inflationary pressures,” said Satish Dondapati, a fund manager – ETF, Kotak Mutual Fund. To stay updated on gold price forecasts, follow our market analysis.
