Gold prices crash and how! The unprecedented rise in gold prices over the last few quarters has come to a halt – for now. In fact, gold prices have been on a crashing spree for the last two months, and the March downfall has been particularly noticeable in the wake of the US-Israel-Iran war and Middle East conflict.Most asset classes have bled in the ongoing rout. From an equity markets stand point, investors have lost a whopping Rs 48.29 lakh crore since the US-Israel strikes on Iran. BSE Sensex and Nifty50 have crashed over 10.5%. The market capitalization of BSE-listed companies has come down by Rs 48.72 lakh crore) to Rs 415 lakh crore since the conflict began. But, in times of geopolitical uncertainties, gold is the go to investment – it’s a time-tested safe haven that investors rush to. Then why are gold prices plunging amidst the ongoing war? Does this mean that gold’s safe haven appeal is fading?
How much has gold crashed?
According to Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities, since the start of the year, gold has seen a relatively limited correction, down 2% internationally (CMP ~$4257) and about 0.5% in domestic markets (₹134700). However, the sharper decline has come post the February 28 Middle East conflict, where gold has corrected significantly by 19% globally and 17% in rupee terms, reflecting heavy liquidation and macro-driven selling pressure. Silver has also mirrored this trend with steep declines following the geopolitical escalation.The figures for gold and silver are staggering. According to data shared by Mirae Asset Sharekhan, since the start of the US-Iran war gold has lost $9 trillion in market capitalisation or Rs 133 lakh crore in domestic market terms. The combined market capitalization loss for gold and silver stands at $10.5 trillion in international market terms and Rs 165 lakh crore domestically.An important point that investors should note is that gold and silver are still up substantially on a year-on-year basis:
- International gold price is up by 45% y-o-y.
- MCX Gold price is up by 58.3% y-o-y.
- International silver price is up by 102.8% y-o-y.
- MCX Silver prices are up 119% y-o-y.
Why are gold prices crashing? Is gold losing safe haven appeal?
While some commodity experts say it’s too early to say whether gold’s safe haven appeal is fading, others say the reasons for the price crash explain the current scenario.“The current fall is not due to a loss of safe-haven appeal, but rather a shift in macro expectations. Rising crude oil prices are keeping global inflation elevated, which is forcing central banks, especially the US Federal Reserve, to maintain a higher-for-longer interest rate stance,” says Jateen Trivedi.Markets had earlier priced in aggressive rate cuts, but the narrative has reversed, with the US Fed indicating possibly only one rate cut in 2026. This shift has strengthened the dollar and bond yields, reducing the attractiveness of non-yielding assets like gold and silver, he tells TOI.
“Additionally, the recent sharp fall was amplified by heavy profit booking and unwinding of long positions, especially after the steep rally seen earlier,” he adds.To understand the crash in gold prices, it’s important to understand the factors that led to the yellow metal’s record rally.Weakness in the US Dollar Index has been one of the major structural fundamental factors fuelling rallies in commodities, especially precious metals, says Praveen Singh, Head of Commodities at Mirae Asset ShareKhan.Investors and central banks have been moving out of the US Dollar Index due to growing threats to the institutional independence and debasement and weaponization of the currency amid rising fiscal concerns in the key economies, he tells TOI.In a way, de-dollarization became a one-way consensus trade. Precious metals rallied hard in January-end as the dollar, driven by threats to the US Fed’s independence and a notion that the US administration would tolerate the US’s Dollar weakness (something akin to Plaza Accord in 1985), crashed to 95.55 on January 27 –a four-year low.
“However, surging oil prices due to the raging Iran war threw the moribund US dollar a new lease of life as the US, being energy independent, is placed relatively better than most of its peers who are oil importing nations. Oil prices rose to a 4-year high before correcting on Trump’s de-escalation announcement,” he explains.While risks to the dollar’s status as a global reserve currency are real and huge; however, at the same time, as we have seen many times, alternatives to the greenback are limited in near term. So, occasionally the US dollar is surely capable of throwing surprises, he adds.Yet another factor that has worked against the rally of gold is the reaffirmation of independence of the US institutions. The Supreme Court’s ruling against the Trump-era tariffs and the Federal Reserve’s continued autonomy—backed by judicial support—have reinforced the resilience of US institutions.
“Finally, owning hard assets became a crowded trade, so leverage unwinding is weighing on commodities. Considering the aforesaid factors, corrections, although quite unnerving and sharp, are not entirely unexpected,” Praveen Singh tells TOI.For Maneesh Sharma, AVP – Commodities & Currencies at Anand Rathi Shares and Stock Brokers, it’s too early to say that gold has lost its status as a safe haven asset this year.Gold’s performance since the war broke out mirrors its decline through mid-2022, when Russia’s invasion of Ukraine caused an energy price shock that rippled through global markets. While volatility in precious metals has calmed somewhat compared with the wild price swings in January, fluctuations have scared off some investors seeking a haven, Sharma tells TOI.Gold-backed ETFs, a popular way to hold the metal for Western retail and institutional investors, have seen persistent outflows in recent weeks, weighing on prices. InCred Money told TOI that gold is not losing its safe haven appeal – what we’re seeing is a combination of profit booking from an overextended rally and an interest rate headwind, both operating simultaneously. That’s why the correction feels as pronounced as it does, it says.
Where are gold prices headed and what should investors do?
While gold and silver prices have already undergone quite a sharp correction, unless oil prices and yields stabilize, precious metals may remain vulnerable, feel experts.In fact, Maneesh Sharma said that a further 10–15% downside moves in both gold and silver in the near term scenario cannot be ruled out.“With prices correcting by almost 15% since the start of ongoing geopolitical conflict, movements in crude oil prices in the short term could remain an important trigger influencing trends,” he says.“Investors could still continue to accumulate gold & silver on any 10–15 % dips in prices in the near term. We still expect gold to deliver 25–30 % returns on a yearly average basis (2025 avg. – 3,445/Oz) while prices could still test $ 5,800–6,000/Oz on the higher side by year end or by the start of next year. Meanwhile silver could remain volatile with higher side targets of $95–100/oz still achievable by year end,” he predicts.Jateen Trivedi, of LKP Securities also believes that the current phase appears to be a corrective downtrend driven by profit booking, and prices may extend 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. This decline should be viewed as an accumulation opportunity for long-term investors, rather than a structural breakdown,” he advises.“If geopolitical tensions persist, upside may remain capped, with gold likely to stabilize in the ₹130000–₹140000 range. However, in case of de-escalation and a shift toward rate cuts, gold can resume its bullish trend, potentially moving back towards $5000 internationally and ₹155000 domestically,” he adds.At least in the short term, we need to dwell on the possibility and impact of demand for risk assets competing with gold demand should the Iran war come to an end, says Mirae Asset Sharekhan’s Praveen Singh.He recommends accumulating gold and silver for medium-to-long term. “This is the preferred strategy as the possible upside is much more than the possible downside. In fact, these corrections are quite healthy. No gainsaying that long-term structural fundamental factors remain well in place. Gold price is expected to rise to $6000-$6500 and silver to $140 by the year-end,” he said.InCred Money is of the view that the gold price correction does not alter the fundamental rationale for holding gold and silver in a portfolio.“The diversification argument remains intact. 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,” it says.“Investors should look at gold and silver from an asset allocation point of view and not as a trading position. The long term thesis of gold (geopolitical uncertainties) and silver (high industrial use) are intact as of now. Such sharp corrections offer a better entry point for long term investors,” it adds.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)
