Gold Price Suffers 5% Drop Following Strong Year-to-Date Gains
The recent correction in gold prices has caused concern among market participants, prompting them to reassess the sustainability of the rally that pushed the metal’s price up by nearly 60% so far this year, according to Janneth Quiroz, Director of Analysis at Monex Casa de Bolsa.
Factors Behind the Price Drop
- Profit-taking by investors who had capitalized on the surge, driven by expectations of interest rate cuts by the Federal Reserve
- Strengthening US dollar
- Progress in US-China trade negotiations
- Technical conditions indicating overbought status
- End of the gold-buying season in India
Solid Fundamentals Underpinning Gold Demand
Despite the price adjustment on Tuesday, Quiroz emphasized that the fundamentals supporting gold demand remain robust. These include:
- Central bank accumulation
- Safe-haven appeal amid fiscal, geopolitical imbalances
- Growing investor participation in gold-backed ETFs
Market Volatility and Consolidation Expected
Felipe Mendoza, Financial Markets Analyst at ATFX LATAM, anticipates heightened volatility and a consolidation phase between $4,337 and $4,160 per ounce. This range could see renewed institutional buying and tactical repositioning.
“Should the US dollar continue to strengthen or if Treasury yields rise, gold might correct to $4,000. However, a technical bounce isn’t ruled out if investors view the drop as an entry opportunity into an asset offering inflation, global debt, and geopolitical risk hedge,” Mendoza commented.
Mixed Outlook for Gold Prices in the Medium Term
Swedish savings and investment firm Skandia’s analysis suggests an upward trajectory for gold prices in the medium term, though correction scenarios are possible.
Major banks have raised their average projections for 2025-2026, citing persistent safe-haven demand, central bank purchases, and macroeconomic conditions with broad fiscal deficits. However, they caution that if the Fed delays rate cuts or inflation falls faster than anticipated, gold prices could correct.
Skandia also highlighted that precious metals serve their traditional role as a hedge against uncertainty and potential currency devaluation. Nevertheless, their high volatility necessitates a clear investment horizon and disciplined risk management.
Key Questions and Answers
- Q: What caused the recent drop in gold prices? A: Factors such as profit-taking by investors, a strengthening US dollar, progress in US-China trade negotiations, technical conditions indicating overbought status, and the end of the gold-buying season in India contributed to the price drop.
- Q: Are the fundamentals supporting gold demand still strong? A: Yes, central bank accumulation, safe-haven appeal amid fiscal and geopolitical imbalances, and growing investor participation in gold-backed ETFs continue to underpin gold demand.
- Q: What can we expect in terms of gold price volatility and consolidation? A: Heightened volatility and a consolidation phase between $4,337 and $4,160 per ounce are anticipated, with potential for institutional buying and tactical repositioning.
- Q: What is the medium-term outlook for gold prices? A: While major banks project an upward trajectory for gold prices in the medium term, they also acknowledge possible correction scenarios due to factors like delayed Fed rate cuts or faster-than-expected inflation decline.
