Gold Prices Experience Sharp Decline Amid Geopolitical Unrest
The unprecedented surge in gold prices over recent quarters has come to an abrupt halt, with the precious metal entering a significant downturn over the past two months. The decline has been particularly pronounced in March, coinciding with escalating tensions in the Middle East, including the US-Israel-Iran conflict. This crash has raised critical questions about gold's traditional role as a safe haven asset during times of global uncertainty.
Extent of the Gold Price Crash
According to Jateen Trivedi, VP Research Analyst at LKP Securities, gold has seen a relatively modest correction of 2% internationally and 0.5% domestically since the start of the year. However, the situation deteriorated sharply following the Middle East conflict that began on February 28. Since then, gold has corrected by a staggering 19% globally and 17% in rupee terms, indicating heavy liquidation and macro-driven selling pressure. Silver has mirrored this trend with similar steep declines.
The figures are indeed staggering. Data from Mirae Asset Sharekhan reveals that since the onset of the US-Iran conflict, gold has lost approximately $9 trillion in market capitalization internationally, equivalent to Rs 133 lakh crore in domestic terms. The combined market cap loss for gold and silver stands at $10.5 trillion globally and Rs 165 lakh crore domestically.
Important context: Despite these recent declines, precious metals remain substantially higher on a year-on-year basis. International gold prices are up 45% year-over-year, while MCX Gold has surged 58.3%. Silver shows even more dramatic gains, with international prices up 102.8% and MCX Silver prices up 119% year-over-year.
Why Are Gold Prices Crashing?
Experts emphasize that the current decline does not necessarily indicate a loss of gold's safe haven appeal. Instead, they point to shifting macroeconomic expectations as the primary driver. "The current fall is not due to a loss of safe-haven appeal, but rather a shift in macro expectations," explains Jateen Trivedi. "Rising crude oil prices are keeping global inflation elevated, forcing central banks, particularly the US Federal Reserve, to maintain higher interest rates for longer periods."
Markets had previously priced in aggressive rate cuts, but the narrative has reversed, with the Fed now indicating possibly only one rate cut in 2026. This shift has strengthened the US dollar and bond yields, reducing the attractiveness of non-yielding assets like gold and silver. Additionally, the recent sharp fall was amplified by heavy profit booking and unwinding of long positions following the earlier steep rally.
Praveen Singh, Head of Commodities at Mirae Asset ShareKhan, adds that weakness in the US Dollar Index had been a major factor fueling precious metal rallies earlier. However, surging oil prices due to the Iran conflict have revitalized the dollar, as the US, being energy independent, is better positioned than oil-importing nations. "Oil prices rose to a 4-year high before correcting on de-escalation announcements," he notes.
Maneesh Sharma of Anand Rathi Shares and Stock Brokers cautions that it's too early to declare gold has lost its safe haven status. He draws parallels to mid-2022 when Russia's invasion of Ukraine caused similar market disruptions. Gold-backed ETFs have seen persistent outflows in recent weeks, contributing to price pressure.
Future Outlook and Investor Strategy
Experts suggest that unless oil prices and yields stabilize, precious metals may remain vulnerable in the near term. Maneesh Sharma warns that a further 10-15% downside move in both gold and silver cannot be ruled out in the near term scenario.
Investment recommendations include:
- Accumulating gold and silver on any 10-15% price dips in the near term
- Expecting gold to deliver 25-30% returns on a yearly average basis
- Potential for gold to test $5,800-$6,000 per ounce by year-end or early next year
- Silver could reach $95-$100 per ounce by year-end, though with higher volatility
Jateen Trivedi views the current phase as a corrective downtrend driven by profit booking, with prices potentially extending lower by another 10-15% in the near to short term. "Internationally, gold could test levels of $4000-$3600, while in domestic markets, prices may drift towards ₹110000-₹115000," he predicts. "This decline should be viewed as an accumulation opportunity for long-term investors."
Praveen Singh recommends accumulating gold and silver for medium-to-long term portfolios, noting that "the possible upside is much more than the possible downside." He expects gold prices to rise to $6000-$6500 and silver to $140 by year-end, emphasizing that long-term structural fundamental factors remain intact.
InCred Money maintains that the gold price correction does not alter the fundamental rationale for holding precious metals in a portfolio. "The diversification argument remains intact," they state. "These assets have low correlation with equities and bonds. They behave differently under stress. That characteristic doesn't disappear because prices have pulled back from elevated levels."
Investors are advised to view gold and silver from an asset allocation perspective rather than as trading positions. The long-term thesis for gold (geopolitical uncertainties) and silver (high industrial use) remains intact, with sharp corrections offering better entry points for long-term investors.
