Gold, long regarded as a safe-haven asset, has seen a sharp correction, falling over 10 percent since hitting an all-time high on 20 October 2025, when prices peaked at $4381 per ounce in the key London spot market. A similar trend has been observed in domestic markets, where MCX gold futures retreated from record highs near Rs.1,31,000 per 10 grams. This decline has prompted investors to reassess their positions and ask: Is this a buying opportunity or a time to book profits?
What triggered the correction?
The recent correction is a confluence of factors such as:
- Profit booking after a historic rally
Gold surged nearly 54 percent year-to-date until mid-October, driven by central bank buying, geopolitical tensions, and expectations of monetary easing. Once prices hit record levels, institutional investors and gold producers began profit-taking and hedging, triggering a wave of selling.
- Ceasefire between Israel and Hamas
The ceasefire agreement in Gaza reduced immediate geopolitical risk, dampening safe-haven demand. Historically, gold rallies during conflict, and peace deals often lead to short-term price dips.
- Muted response to US Fed rate cut
Despite the Federal Reserve cutting rates by 25 basis points in late October, gold failed to rally. This was due to the Fed’s “hawkish cut” tone, with Chair Jerome Powell cautioning that further rate reductions are “far from certain.” This ambiguity strengthened the US dollar and Treasury yields, both of which pressured gold.
- US Treasury auctions and economic data pressure gold
Recent US Treasury reopening and robust economic releases have strengthened the dollar, exerting downward pressure on gold prices. Higher Treasury yields increase the opportunity cost of holding non-yielding assets like gold, prompting investors to shift toward bonds. Strong retail sales and job data have reinforced expectations of economic resilience, reducing safe-haven demand. Consequently, gold has struggled to regain momentum despite lingering geopolitical risks.
- US Dollar and treasury yield
A surge in US Treasury yields and a recovery in the dollar have made gold less attractive. As yields rise, the opportunity cost of holding non-yielding assets like gold increases, leading to selling pressure.
- Geopolitical tensions still simmering
While the Middle East conflict has cooled, tensions between the US and Russia have escalated. President Putin’s revision of Russia’s nuclear doctrine has reignited concerns, but gold’s reaction has been subdued, suggesting that markets may be pricing in diplomatic containment rather than escalation.
Are Central banks still buying?
Despite the correction, central banks remain net buyers of gold. In Q3 2025, global central banks added 220 tonnes, a 28 percent increase from the previous quarter. Notably, Poland, India, and Uzbekistan were among the top buyers in November. This sustained accumulation reflects a strategic shift away from US dollar reserves and towards gold as a hedge against currency and geopolitical risks.
While gold is gaining prominence in central bank reserves, it’s premature to say it’s replacing the US dollar. However, the de-dollarization trend is real. Countries like China, Russia, and India are diversifying their reserves, and gold’s stateless nature makes it an attractive alternative in a fragmented geopolitical landscape.
Domestic demand: Post-festival trends
India’s gold demand saw mixed trends post-Dussehra and Diwali. While jewellery demand fell 16 percent year-on-year due to high prices, investment demand surged. Consumers shifted toward gold coins, bars, and ETFs, viewing gold more as a financial asset than ornaments for festivals. Leading jewellers reported record Diwali sales, but the momentum slowed afterwards as prices corrected.
Currently, domestic gold prices have entered a phase of consolidation. Following record highs in October, domestic prices corrected marginally as festive demand tapered. The recent correction in prices reflects global cues and expectations of a US Federal Reserve rate cut in December.
The post-Diwali dip of 2–5 percent was largely driven by profit booking and a stronger US dollar. However, underlying fundamentals remain supportive. The ongoing wedding season, central bank buying, and geopolitical uncertainties continue to underpin demand. The ongoing correction is mostly temporary, with long-term bullish factors intact.
Weak Rupee likely to fuel gold price surge and import woes
The Indian Rupee’s recent slide to a historic low of Rs. 88.8 against the US dollar has sent ripples across the economy, with gold prices and imports bearing the brunt. Since India imports nearly 85–90 percent of its gold requirements, a weaker rupee directly inflates the landed cost of the metal, even if global prices remain steady. This currency-driven premium has pushed domestic gold rates sharply higher, amplifying volatility in the bullion market.
The INR/USD exchange rate plays a pivotal role in determining local gold prices. For every Re. 1 fall in the rupee, domestic gold prices can rise by Rs. 300–Rs. 500 per 10 grams, making currency weakness a critical driver of bullion trends.
If the rupee remains under pressure, gold prices in India could stay elevated despite global corrections. While investment demand may persist as households hedge against inflation and currency risk, jewellery demand is likely to remain subdued. For policymakers, the challenge lies in balancing cultural affinity for gold with macroeconomic stability, as persistent rupee weakness threatens to keep India’s gold import bill, and its trade deficit, at uncomfortable highs.
What should investors do?
With gold correcting from its peak, investors face a dilemma: buy more or book profits?
Looking ahead, the short-term trend may remain range-bound or see further consolidation. The strength of the US dollar, Treasury yields, and Fed policy will be key drivers. If geopolitical tensions escalate again or the Fed signals dovishness, gold could rebound.
The structural drivers like central bank buying, inflation concerns, and geopolitical fragmentation remain intact, which may be supportive for long term investors. Gold continues to be a strategic asset for portfolio diversification and wealth preservation.
Investment strategy
Those sitting on gains may consider partial profit booking, especially if gold forms a lower high in the coming weeks. However, long-term positions can be retained, given the macro backdrop. Meanwhile, the current dip offers a potential entry point for new investors. SIPs in gold ETFs or sovereign gold bonds can help average out costs and reduce timing risk.
Gold’s recent correction is a healthy pause after an extraordinary rally. While short-term headwinds exist, the long-term case for gold remains strong. Investors should stay informed, avoid panic, and align their strategy with their financial goals.
