Why are gold prices falling? Top factors breaking gold’s winning streak - what should investors do?

Why are gold prices falling? After a record-breaking run, gold prices seem to be taking a breather with a significant 3% drop this week in the international markets. The yellow metal is set to end its nine consecutive weeks of gains with a weekly drop to $4,118.68 per ounce.

This would be its sharpest fall since May.According to an ET report, the correction in gold prices appears to be largely technical in nature, following an exceptional period where it rose over 50% since the start of the year.In India, the local markets reflected international sentiment, as MCX December gold futures traded down by 1% at Rs 1,23,222 per 10 grams, while silver declined by 1.5% to Rs 1,46,365 per kg during Friday morning trading.The dip in gold prices was more pronounced earlier in the week, with gold seeing its steepest intraday decline of over 5% in five years, whilst silver registered a 6% weekly decrease to $48.62 per ounce, marking its poorest weekly performance since March.

Why are gold prices falling?

So why is the gold rally weakening? What’s the outlook for gold prices? Here’s what experts say:According to the ET report, a combination of three developments has triggered the current market selloff in gold, reshaping immediate trading patterns.

Firstly, profit-booking after sustained periods of gains. Gold-backed ETFs experienced their most substantial single-day tonnage withdrawal in five months, indicating that institutional investors are reducing their positions following elevated valuations at consecutive record highs.Secondly, the dollar index has shown strength over three straight sessions, effectively diminishing gold's attractiveness by increasing its cost for those holding other currencies.

This fundamental relationship between currency values and commodity prices has become prominent again, after being temporarily overshadowed by safe-haven trading during gold's upward movement.Furthermore, increased confidence regarding possible US–China trade deal has reduced the appeal of defensive investments. "A meeting between the US 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," said Tim Waterer, Chief Market Analyst at KCM Trade.The White House has confirmed that Trump will hold discussions with Chinese President Xi Jinping in the coming days.

What’s the outlook for gold prices?

The report said market focus has now turned to Friday's US Consumer Price Index data, which was delayed due to the government shutdown. Analysts anticipate core inflation will remain at 3.1% for September."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."Markets have largely factored in a 25-basis-point interest rate reduction in the next Federal Reserve meeting. The relationship is usually straightforward: lower interest rates support gold prices, because they reduce the opportunity costs that are associated with holding non-interest-bearing assets.Geopolitical tensions remain a key driver of gold's appeal, despite recent market movements influenced by trade sentiment. Fresh US sanctions against Russia over the Ukraine conflict have expanded the scope of economic measures.The perspective offered by prominent investor Ray Dalio is important: "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.

"Short-term price fluctuations may occur, but the overall positive outlook for gold remains supported by the ongoing shifts in the global monetary landscape, the ET report said.Reliance Securities' Senior Research Analyst Jigar Trivedi anticipates immediate downside pressure, saying: "MCX Gold December may drop to Rs 123,000/10g as the undertone in the world markets is weak."Looking at extended timeframes, major institutions maintain positive outlooks. JPMorgan's analysis suggests prices could achieve an average of $5,055 per ounce in the fourth quarter of 2026, citing "demand assumptions that see investor demand and central bank buying averaging around 566 tons a quarter in 2026."JPMorgan presents an optimistic long-range forecast, suggesting gold prices could exceed $8,000 per ounce by 2028 as investors seek safety from market and global uncertainties.(Disclaimer: Recommendations and views on the stock market and other asset classes given by experts are their own. These opinions do not represent the views of The Times of India)