Amid a sustained decline in gold prices, a fresh wave of speculation has emerged over the possibility of a steeper correction in the coming weeks. Jayantilal Chalani, president of the Chennai Gold and Diamond Merchants’ Association, has indicated that prices could fall by as much as 30%, citing shifting global investment patterns.

Traditionally, gold has acted as a safe-haven asset during periods of geopolitical uncertainty. Prices had surged in anticipation of escalating tensions involving Iran. However, the current trend marks a reversal, with gold witnessing a steady decline despite lingering global risks.

Chalani attributes this downturn primarily to a surge in demand for crude oil. With supply constraints tightening and prices expected to rise further, investors are increasingly reallocating funds from gold to oil markets. “The demand for crude oil has outpaced production levels. Anticipating higher returns, investors are diverting both fresh and existing investments from gold into oil,” he said.

He further suggested that this trend could intensify in the short term, potentially pushing gold prices down by up to 30% before the end of the Iran conflict cycle. However, he noted that such a sharp fall, if it occurs, may be brief, with prices likely to rebound and stabilise at higher levels thereafter.

Economists, however, remain cautious about such projections. Many argue that a correction of that magnitude is improbable under current macroeconomic conditions. Rising crude oil prices are expected to fuel inflation, particularly in the United States, prompting the Federal Reserve to maintain or even raise interest rates. Higher interest rates typically strengthen the dollar and bonds, making gold less attractive in comparison.

Additionally, the recent historic highs in gold prices have triggered profit-booking among investors. Market participants are also liquidating gold holdings to offset losses in equity markets, adding further downward pressure.

Despite these factors, experts maintain that gold’s fundamental appeal as a safe-haven asset remains intact. In the event of any escalation in global conflict, demand for gold could rebound sharply. Analysts from leading global financial institutions suggest that while a short-term correction of 5% to 10% is plausible, a 30% decline appears unlikely. Some projections even indicate that gold could reach new highs by the end of the year.

The divergence in views underscores the uncertainty surrounding commodity markets, as investors navigate a complex mix of geopolitical risks, inflationary pressures and shifting asset preferences.