Gold rally snaps after 9 weeks as 3 factors lead retreat. Crash or buying opportunity ahead?

Gold is poised to end its nine-week winning streak with a 3% weekly decline to $4,118.68 per ounce, marking its sharpest correction since May. The pullback appears largely technical in nature, following a period of exceptional gains that saw the metal surge over 50% year-to-date and repeatedly test record highs.

Domestic markets mirrored the global weakness, with MCX December gold futures trading 1% lower at Rs 1,23,222 per 10 grams and silver falling 1.5% to Rs 1,46,365 per kg on Friday morning. The correction intensified early in the week, with gold dropping more than 5% in its largest intraday loss in five years, while silver tumbled 6% for the week to $48.62 per ounce — its worst weekly performance since March.

Three Factors Behind the Retreat

The selloff reflects a confluence of three key developments reshaping near-term market dynamics.First, profit-taking has accelerated following months of relentless gains. Gold-backed ETFs recorded their largest single-day outflow by tonnage in five months, suggesting institutional investors are trimming positions after valuations became stretched at successive all-time highs.Second, the dollar index has strengthened for three consecutive sessions, mechanically reducing gold’s appeal by making it more expensive for non-dollar holders. This technical relationship between currency movements and commodity pricing has reasserted itself after being overshadowed by safe-haven flows during gold’s rally.
Third, renewed optimism around potential U.S.–China trade progress has diminished demand for defensive assets. “A meeting between the U.S. and Chinese leaders stands a decent chance of de-escalating trade tensions, which is aiding the dollar and drying up some safe-haven demand for gold,” observed Tim Waterer, Chief Market Analyst at KCM Trade.
The White House confirmed President Donald Trump will meet Chinese President Xi Jinping next week during an Asia trip, providing a concrete timeline for potential de-escalation after months of tit-for-tat retaliatory measures between Washington and Beijing.
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Inflation Data as the Near-Term Pivot

Market attention has shifted to Friday’s U.S. Consumer Price Index report, delayed by the government shutdown, which is expected to show core inflation holding steady at 3.1% in September. The data carries significant implications for gold’s trajectory given its inverse relationship with real interest rates.

“From gold’s perspective, a tame CPI print would be welcomed as this would keep the Fed on track to cut rates twice before year-end,” Waterer noted. “But any upside surprises in inflation would likely see the dollar gain further traction higher, which could be to the detriment of gold.”

Investors have nearly fully priced in a 25-basis-point rate cut at next week’s Federal Reserve meeting. Gold typically benefits from lower interest rates as they reduce the opportunity cost of holding non-yielding assets, making the inflation trajectory central to medium-term price formation.

Darshan Desai, CEO of Aspect Bullion & Refinery, outlined the key variables: “Looking ahead, markets will focus on the release of US CPI data later today, updates on the US government shutdown, and next week’s meeting between US President Donald Trump and Chinese President Xi Jinping. A successful trade agreement between the two nations could put additional downward pressure on gold prices, while any escalation in US-Russia tensions or sanctions could help support prices at lower levels.”

Geopolitical Undercurrents Remain Supportive

While trade optimism has dominated recent price action, underlying geopolitical dynamics continue to provide structural support for gold demand. The U.S. recently imposed new sanctions on Russia to pressure Moscow toward a Ukraine ceasefire, adding to a broader pattern of financial and economic warfare.

Billionaire investor Ray Dalio’s analysis suggests this environment fundamentally supports gold: “History and logic have made clear that sanctions reduce the demand for fiat currencies and debts denominated in them and support gold. When this occurs with the world’s leading power and its reserve currency, the global monetary order is inevitably weakened. As a result, the holding and price of gold rise, as it is a non-fiat currency that remains securely held and universally accepted.”

This framework implies that even temporary corrections may occur within a longer-term bullish structure driven by monetary system fragmentation.

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Technical Outlook and Strategic Positioning

Jigar Trivedi, Senior Research Analyst at Reliance Securities, projects further near-term weakness: “MCX Gold December may drop to Rs. 123,000/10g as the undertone in the world markets is weak.”

However, institutional forecasts remain constructive on longer horizons. JPMorgan analysts maintained their bullish outlook, forecasting prices could reach an average of $5,055 per ounce by the fourth quarter of 2026, based on “demand assumptions that see investor demand and central bank buying averaging around 566 tons a quarter in 2026.”

The bank’s long-term view is even more aggressive, predicting gold could surpass $8,000 per ounce by 2028 as investors seek protection against equity and geopolitical risks. “Gold remains our highest conviction long for the year, and we see further upside as the market enters a Fed rate-cutting cycle,” said Natasha Kaneva, Head of Global Commodities Strategy at JPMorgan.

The divergence between near-term technical corrections and long-term structural forecasts suggests the current pullback may represent a consolidation phase within a broader uptrend rather than a reversal of gold’s fundamental drivers. The key question for investors is whether cyclical factors — trade deals, inflation prints, dollar strength — can sustainably override structural tailwinds from central bank accumulation, monetary system concerns, and geopolitical fragmentation.

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)