Gold slips 5% amid West Asia conflict – is it too late to invest in gold? Here's what experts say on gold outlook
Gold prices have pulled back from recent record highs, prompting investors to question whether the powerful rally in the precious metal is coming to an end or if the current decline is simply a temporary correction. Data from the Multi Commodity Exchange (MCX) show that gold prices, which stood at ₹1,69,605 per 10 grams on March 2, have fallen by ₹8,194, or nearly 5%, to around ₹1,61,411. The decline has come amid mixed global signals, including stronger-than-expected US economic data and ongoing geopolitical tensions in the Middle East.
Why is gold fluctuating?
Recent economic data from the United States have been stronger than expected, which has weighed on gold prices in the short term. The ADP employment report showed job growth of 63,000 in February, beating estimates of 50,000. Meanwhile, the ISM Services Index surged to 56.1, significantly higher than forecasts of 53.5 and marking the fastest expansion in the services sector since July 2022.
Strong economic indicators typically strengthen the US dollar and reduce the appeal of non-yielding assets such as gold. A firmer dollar has kept gold prices volatile in recent trading sessions.
However, geopolitical risks continue to provide some support to bullion. Tensions in the Middle East and concerns about disruptions to oil shipments through the Strait of Hormuz have kept safe-haven demand alive.
Is the gold rally over?
According to Alok Jain, Founder of Weekend Investing, the recent decline should be seen in the context of a much larger long-term trend.
Gold and silver had spent nearly a decade consolidating after their 2011 peaks, and the current rally only began breaking out of that long consolidation in the last few years.
The current correction, he argues, does not necessarily indicate the end of the rally.
“Hard asset cycles typically last decades, not just a few quarters,” Jain said in a recent podcast, adding that structural factors supporting gold remain strong.
Global debt and money supply
One major factor supporting gold prices is the sharp rise in global debt levels.
The US debt-to-GDP ratio has climbed to around 120–125%, levels last seen during World War II. Governments worldwide have increasingly relied on borrowing and money creation to support economic growth since the 2008 financial crisis.
This has led to rapid expansion in global money supply, raising concerns about currency debasement and long-term inflation.
Interestingly, central banks themselves—institutions responsible for issuing currencies—have been aggressively accumulating gold reserves in recent years. Many analysts see this as a sign that governments are seeking a hedge against potential instability in the global financial system.
Supply constraints
Another structural factor supporting gold is limited supply growth.
Global gold production is currently around 3,000–3,300 tonnes per year, while total demand has risen to nearly 5,000 tonnes annually, partly driven by central bank purchases and growing investment demand.
Adding a new supply is also a slow process. Even when a major gold deposit is discovered, it can take 10–15 years before a mine becomes operational.
This supply-demand imbalance could continue to support gold prices over the long term.
Portfolio allocation still low
Despite the rally, gold still represents a small share of global investment portfolios.
On average, commodities account for only around 1–2% of portfolios, while the majority of wealth remains invested in equities and financial assets.
Analysts say even a small increase in gold allocation by global investors could drive large capital inflows into the relatively small gold market.
Should investors still buy gold?
Experts say investors should view gold less as a short-term trade and more as a long-term portfolio hedge.
Short-term corrections are common, especially when economic data strengthen the dollar. However, long-term drivers—including rising global debt, geopolitical tensions and limited supply growth—continue to support the gold case.
For investors, the key strategy may be gradual allocation rather than trying to time short-term price movements. Gold remains widely regarded as a portfolio stabiliser, particularly during periods of economic uncertainty and market volatility.
Short-term volatility
Market experts say gold is currently experiencing sharp swings due to global macroeconomic developments.
“Gold remained highly volatile as CME prices saw a sharp sell-off from $5,400 to $5,000, before finding support and recovering towards $5,200. MCX Gold mirrored the swings, trading in a wide ₹1,59,000–₹1,70,000 range and currently near ₹1,64,000,” said Jateen Trivedi, VP Research Analyst – Commodity and Currency at LKP Securities.
He added that volatility is likely to persist. “Volatility is expected to remain elevated due to the ongoing Western Asia conflict and failed US–Iran nuclear talks, which continue to keep uncertainty high in global markets,” Trivedi said.
Recent surge
Technical indicators suggest that gold is currently consolidating after a sharp rally. According to Ponmudi R, CEO of Enrich Money, MCX gold futures remain within a broad trading band.
“MCX Gold futures are currently trading within the ₹1,60,000–₹1,70,000 range. Prices are witnessing short-term consolidation with a mildly positive bias, supported by persistent risk-off flows in global markets,” he said.
“Strong buying interest continues to emerge within the ₹1,58,000–₹1,62,000 demand zone following the recent surge driven by geopolitical tensions in the Middle East.”
He added that a breakout could resume the rally. “A sustained hold above this base, followed by a breakout above ₹1,70,000, may revive upward momentum toward the ₹1,75,000–₹1,80,000 zone, thereby maintaining a constructive medium-term outlook.”
[embedded content]