Gold Rally Pauses: Reasons Behind Slowdown in Prices Explained

Gold rate continued its declining spree on Wednesday as the demand levels took a faltering tone. Easing tensions around trade war coupled with commodity investors switching to profit-booking, altogether have paused the rally in yellow metal. On Wednesday, the rate of 24-carat gold (per 10 grams) stood at Rs 95,880 price level as per GoodReturns. The yellow metal has witnessed a sharp tumble in the last few weeks after touching the Rs 1 Lakh price level.

Analysts are now expecting an estimated correction of 4-5% as investors start to price in the impact of easing tensions around Trump's tariff play.

"A rising value of the dollar indicates that trade tensions between the US and China are decreasing. In a single week, gold June futures fell 6.81% from a record high of $3,509.9 per ounce (Rs 99,358 per 10 grams on MCX)," said Tejas Anil Shigrekar, chief technical research analyst, commodities and currencies at Angel One.

Silver prices followed suit and witnessed a declining investor interest.

"Silver spot prices, meanwhile, fell 1.77% to $32.90 an ounce, but they were still on track to rise for a third consecutive week," Shigrekar said.

Here's why the yellow metal is taking a breather-

1.Profit-booking at place

Many financial institutions, including Goldman Sachs and UBS, increased their gold price targets this year. While every asset class was experiencing muted movement owing to macro turbulence, Gold's price action defied the same. On year-to-date basis, the yellow metal has surged over 26%. In fact, Silver also followed suit.

After such a sharp rally, many analysts were already expecting a profit-booking period to take over.

"Gold prices came under heavy selling pressure as Comex fell by $38 to $3,275, and MCX gold dropped Rs 1,650 to Rs 93,950," said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

2.Easing Trade-War Tensions

Last week, the US administration hinted at striking a trade deal with China and called the triple-digit tariffs imposed on the nation 'unsustainable'. This has eased tensions over macro turbulence, pushing down the demand for safe-haven assets.

Analysts pointed out that the sharp decline in gold price follows renewed optimism over global trade deals, particularly between the US and China. "After a stellar 14% rally in April driven by tariff tensions, gold now faces the possibility of a 4–5% correction as the market begins to price in the easing of trade risks. A confirmed US-China deal could be a major bearish trigger in the near term," said Trivedi.

"A rising value of the dollar indicates that trade tensions between the US and China are decreasing...strategy for the coming week: “Buy on correction.” The psychological barrier of 1 lakh, soon crossed by Gold this time, followed by Silver," said Shigrekar.