Gold prices do not always move in one direction; there is always a phase of rise and fall in prices. And gold prices have fallen from their recent highs. Investors are curious why the prices are falling. This sudden movement has caught investors’ attention, raising questions and discussions across the market as they try to understand the shift in gold’s short-term trend.
In today’s blog post, we will give you the key reasons why the gold price is going down.
Why are gold prices going down?
The key reasons behind why gold prices are going down are as follows:
- Strengthening the US Dollar: Generally, gold prices move opposite to the US dollar. If the dollar strengthens, gold becomes expensive for buyers, which reduces demand and pushes the price down.
- Increasing Interest Rate: Rising interest rates make fixed-income investments more attractive to investors. Therefore, investor’s moves towards it and shift away from it.
- Profit Booking: The gold prices have risen significantly in the past few months, and investors are booking profits in it, which creates short-term pressure on it.
- Geopolitical Tension: Gold is often considered a haven. And as the global tensions are easing the demand for gold decreases.
- Decreasing Inflation: As inflation is slowing down, the need to hold gold decreases, as it is used as a hedge against inflation.
- Shift in demand for jewellery: Recent higher gold prices have caused many buyers to delay their purchase, which causes further pressure on the gold prices.
Past 5 Years Gold Returns
The past years’ gold returns are as follows:
| Year | Gold Price (₹ per 10g, 24 K) | Approx. YoY Return (%) |
|---|---|---|
| 2019 | 39,108 | — |
| 2020 | 50,151 | 28.20% |
| 2021 | 48,099 | –4.1% |
| 2022 | 55,017 | 14.30% |
| 2023 | 63,203 | 14.90% |
| 2024 | 78,245 | 23.80% |
| 2025 | 1,02,170 | 30.60% |
Based on the above table, we can conclude that only 2021 saw a slight decline because of post pandemic period, and for the rest of the duration, Gold has delivered double-digit returns, including the last year 2025.
Importance of Gold Prices in the Indian Economy
- Household Preferred Store of Value: The Indian families have a deep faith in gold as a secure store of value. With the rise in the price of gold, the net worth of households rises, particularly in rural India, where gold is a significant type of savings. Gold prices also increase investor confidence in gold as a risk hedge in times of economic uncertainty.
- India Import Bill and Current Account Impact: The majority of the gold is imported into India. When the price of gold goes up, the country’s import bill goes up and may cause a widening of the current account deficit and strain on the rupee. On the other hand, low or stable gold prices assist in minimising external trade pressure.
- Investment and Financial Markets: The prices of gold have an influence on the allocation of investors to gold, equities, and fixed income. An increase in prices is normally a sign of economic uncertainty, whereas a decrease in prices may indicate an increasing risk appetite. Gold ETFs, Sovereign Gold Bonds and digital gold have also made gold a stronger force in India’s financial system.
- Policy Decisions and Government Measures: Sudden spikes in the price of gold usually cause government intervention either by adjusting import duty or encouraging financial gold (SGBs, Gold ETFs) to minimise physical gold demand and control foreign exchange outflows.
Factors Affecting Gold Prices in India
Gold prices in India are affected by various factors, a few of which are as follows:
- International Gold Prices: Gold is traded in US dollars around the world. The Indian gold rates are directly affected by any increase or decrease in the world gold prices.
- US Dollar and Rupee Exchange rate: A depreciated Indian rupee against the US dollar will make imports of gold more costly, which will raise domestic gold prices despite the global price being steady.
- Inflation: Gold is considered a hedge against inflation, and when it rises, investors start to purchase gold, which increases the demand and pushes the prices upward.
- Interest Rate: If the interest rate in the economy is reduced, the fixed income securities or investment options become less attractive; hence, investors move towards gold as an investment vehicle, which increases demand and puts pressure on the price.
Conclusion
On a concluding note, gold prices have shown a sudden fall after making a lifetime high. Investors are in confusion about why prices are falling, but the key reasons behind such a fall include weakening INR, profit booking, lower interest rates, geopolitical conditions, etc. However, they need to understand that decreasing gold prices reflect the improving economic conditions. If an investor is looking to invest in gold, they can easily invest through Gold ETFs, mutual funds, etc., Platforms like Pocketful make the process simple and convenient, but only after consulting with their investment advisor.
Frequently Asked Questions (FAQs)
Why is there a sudden sharp fall in gold prices?
The key reasons behind the fall in gold prices include improving geopolitical conditions, profit booking after recent highs, and shifting investor sentiment in the short term.
Is it the right time to invest in Gold?
Yes, it is the right time to invest in gold, but one should make a strategic allocation by investing through SIPs.
Will Gold prices rise again in future?
Yes, Gold prices will rise again in future as historically gold has shown a cyclical movement. The current correction is short-term; in the long run, gold prices will rise.
How does the Indian rupee affect gold prices?
India primarily imports gold from other countries, and a weakening INR can put pressure on gold prices, whereas a stronger rupee can help in stabilising the gold prices.
How stock market affect gold prices in an economy?
If the stock market is performing well, people will shift towards the capital market, which reduces the demand for gold, and prices will fall.
