Gold’s rollercoaster ride: Key factors driving continued price volatility
After a stellar rally that saw gold prices rise from around Rs 70,300 per 10 grams in August to Rs 81,800 per 10 grams in October, the yellow metal showed signs of weakness, correcting around 5 percent in just a few days. This price volatility comes as part of a broader trend seen globally, where gold has been steadily rising since early 2024, driven by macroeconomic uncertainty, inflation concerns, and political tensions.
International and domestic drivers behind the golden roller-coaster trend
The recent volatility in gold prices can be attributed to a mix of factors, both international and domestic. Historically high inflation rates have supported gold prices as investors look to combat currency depreciation. While inflation will increase in 2022, it remains persistently high, impacting economic growth and affecting major banks around the world. After months of aggressive rate hikes, there is now growing speculation that interest rates will rise, and a rate cut could soon follow, giving further impetus to a possible gold rally.
However, uncertainty about interest rate cuts continues, especially with the re-election of Donald Trump raising doubts about the future nature of economic policy. His promises of tax cuts and deregulation could stimulate the US economy, which could curb gold’s near-term gains if the dollar strengthens.
Gold continues to shine amid political tensions and the growing issue of dollar withdrawal, especially with the outcome of the upcoming US election and the intention of the BRICS countries to challenge the dominance of the dollar. Historically seen as a hedge against inflation and volatility, gold’s appeal has grown as countries rethink their reliance on a single currency. As digital currencies lose popularity due to apparent security concerns, gold has regained its status as a popular safe haven. “In uncertain times, gold remains a classic reserve currency, providing stability when other assets are volatile,” highlighted Vivek Banka, Co-Founder, GoalTeller. Over the past decade, gold has delivered strong returns, outperforming many investments, especially in volatile markets. However, investors are advised to be cautious, especially given the nature of the commodity cycle and the potential for short-term price fluctuations.
Geopolitical conflicts and economic decline
Recession worries continue to mount in advanced markets, including the US, where recent data shows a mixed economic outlook despite a strong labor market. Gold, often seen as a safe-haven asset, has historically benefited during economic downturns. Demand for gold has increased among central banks and individuals, especially in the Middle East, as a hedge against national risks, including the ongoing conflict in the Middle East.
Strong demand indicates that ‘smart money’ is exposing itself to potential economic shocks. In India, too, there has been a surge in gold buying, with retail investors turning to ETFs for quick and flexible exposure.
The rally in the US dollar following Trump’s victory contributed to the recent decline in gold prices. A strong dollar makes gold more expensive for holders of other currencies, reducing demand. However, there is uncertainty as to how long the dollar’s strength will last, as much depends on the economic impact of Trump’s policies and the broader trajectory of the US economy.
Additionally, the emotional aspect of gold investing, often driven by fear of missing out (FOMO), has kept demand strong despite recent price declines. Retail investors, especially those buying ETFs, have shown a tendency to increase their holdings during price rallies, although this sentiment tends to reverse sharply during corrections.
As noted by analysts, gold prices fell sharply in the first week of November after hitting new all-time highs. Trump’s re-election and subsequent political developments triggered a tariff war, boosting the US dollar.
“The first week of November saw gold move lower after hitting new highs on the first day of the month as President Trump proposed voting! Asians remained buyers amid the turmoil although North America saw large selloffs in Gold ETFs. The USD gained the most – all negative aspects of gold The daily close below the 2,590 downtrend confirmed an imminent bear trend, with the following support levels 2,534. and 2,470” said Sandip Raicura, CEO – Retail Sales and Distribution, Director – PL Broking and Distribution.
