Gold and silver witnessed an aggressive correction last week, with gold declining ~11% and silver ~15%, marking the sharpest weekly fall since 2011. Gold plunged over $500, its steepest weekly drop since 1983, and is now down nearly 17% over the past three weeks.
Key Drivers Behind the Sharp Decline
- Liquidity-Driven Selling (Primary Trigger)
The sell-off has been largely driven by forced liquidation and cash raising, particularly from Arab Gulf entities and institutional players. In times of extreme uncertainty, investors tend to liquidate their most liquid assets first, and gold—being one of the most liquid global assets—becomes a source of funds rather than a safe-haven destination.
- CTA & Momentum Unwinding
A decisive break below key technical levels ($5000 and $4800) triggered systematic selling by CTAs and momentum funds. Given that gold was one of the most crowded and profitable trades over the past two years, the unwinding of long positions accelerated the downside.
- Strong Dollar Feedback Loop
Proceeds from gold liquidation have flowed into the US dollar, strengthening it further. This has created a self-reinforcing loop:
- Gold selling → Dollar buying
- Stronger dollar → Further pressure on gold
- Hawkish Central Bank Repricing
Markets have sharply repriced interest rate expectations:
- Fed funds rate anchored at 3.50–3.75%
- Inflation projections raised to 2.7%
- Only one rate cut expected in 2026
The “higher-for-longer” narrative has pushed real yields higher, significantly reducing the attractiveness of non-yielding assets like gold.
- Geopolitics Paradox: Inflation > Safe Haven
Despite escalating tensions in the Middle East:
- Oil surged above $120/barrel
- Inflation risks increased
- Markets priced in prolonged monetary tightness
This cycle is different—geopolitical escalation is supporting inflation, not gold, as it reinforces central bank hawkishness.
Technical Breakdown and Current Positioning
- Gold: Tested critical support at $4500
- Silver: Tested key support at $65
The breach of major support zones triggered broad-based deleveraging, but both metals have since shown a technical rebound from these levels.
Why Safe-Haven Demand Failed This Time
Traditionally, geopolitical risk boosts gold. However, in this cycle:
- Gold is highly liquid → used for margin calls
- Investors are prioritizing cash over hedges
- Rising yields increase opportunity cost of holding gold
This reflects a “liquidity crisis phase”, not a structural shift in gold demand.
However, upside remains capped in the near term due to:
- Elevated real yields
- Strong dollar
- Hawkish global central bank stance
Outlook: Correction Within a Structural Bull Market
Despite the sharp correction, the broader framework remains intact:
- Central bank buying continues to provide a structural floor
- Geopolitical risks remain elevated
Fiscal instability and debt concerns persist globally
Gold has broken the support of $4500 (50% retracement of the rally from $3350 to $5600). We could see more profit-booking upto $4200 (~Rs 132-133,000) (61.8% retracement) from here. But prices are in oversold zone, so we could see rebound and short-covering too this week upto $4750 (~ Rs 148-149,000).
Silver is trading around key support zone of $64-67 (61.8% retracement of the rally from $52 to $120. If prices break this zone, more profit-booking expected upto $60 (~Rs 200,000) and $57 (~ Rs 190,000). But as prices are in oversold zone, we might see rebound and short-covering upto $77 (~ Rs 240,000) too this week.
Disclaimer: This report contains the opinion of the author, which is not to be construed as investment advice. The author, Directors, and other employees of Augmont Goldtech Pvt. Ltd; Augmont Enterprise Private Ltd. and its affiliates cannot be held responsible for the accuracy of the information presented herein or for the results of the positions taken based on the opinions expressed above. The above-mentioned opinions are based on information which is believed to be accurate, and no assurance can be given of the accuracy of the information. The author, directors, other employees and any affiliates of Augmont Goldtech Pvt. Ltd; Augmont Enterprise Private Ltd cannot be held responsible for any losses in trading. In no event should the content of this research report be construed as an express or implied promise, guarantee or implication by or from Augmont Goldtech Pvt. Ltd; Augmont Enterprise Private Ltd., that the reader or client will profit, or the losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. The information provided in this report is intended solely for informative purposes and is obtained from sources believed to be reliable. The information contained in this report is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. We do not offer any sort of portfolio advisory, portfolio management or investment advisory services. The reports are only for information purposes and are not to be construed as investment advice.
