Normally, gold prices tend to rise when there are fears of an economic recession. This is because gold is often seen as a safe-haven asset. However, the current situation is unusual. Despite increasing fears of a global recession, triggered by the US trade war, the price of gold is falling. This is confusing investors.
In the last 2 trading sessions, gold prices have dropped significantly, by over 4%. More than 3% of this drop occurred on Friday, April 4.
On Monday, April 7, the spot price of gold dipped another 0.3% to $3,027.90 per ounce. This was the lowest level for gold since March 13.
The price of 24-carat gold fell to ₹90,650 per 10 grams, according to news reports.
Over the past year, the price of gold had risen due to economic anxieties, inflation concerns, and the aggressive stance of central banks. However, the recent sell-off indicates a change in this trend.
News reports suggest that institutional investors might be selling off their gold holdings. This could be to raise cash or to cover margin calls in other asset classes that have experienced significant losses.
Different market participants perceive gold as a safe-haven asset providing some support amid the market volatility. Ongoing economic uncertainty and investors’ losses are driving the decline in gold prices. Moreover, profit-taking could be a reason for the short-term weakness in gold prices.
US President Donald Trump’s unexpected increase in tariffs and China’s retaliatory tariff of 34% caused panic across various asset classes, including commodities.
China also imposed export restrictions on rare earth metals. This further intensified the risk-off sentiment in the market.
Despite these factors, instead of increasing, gold prices dipped. This suggests that investors might be anticipating a broader correction across all asset classes, including those traditionally considered safe havens.
Goldman Sachs has increased its forecast for interest rate cuts by the US Federal Reserve in 2025. They now expect 130 basis points of cuts, up from their earlier prediction of 105 bps. This revision is due to the increasing economic strain from the trade war.
While Federal Reserve Chair Jerome Powell has stated that the central bank is “in no hurry” to cut interest rates, market expectations tell a different story. Traders are currently pricing in a 54% chance of a rate cut as early as May.
Despite recession fears, gold prices are falling due to factors like profit-taking and anticipation of broader market corrections. News reports suggest continued volatility, influenced by economic data and US Federal Reserve actions.
Read more on: Gold Loan Borrowers Face New Hurdles as Banks Tighten Repayment Rules
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Published on: Apr 8, 2025, 1:29 PM IST
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