Gold’s sharp correction: What lies ahead for prices?

Published 4 July 2026 · finance

Gold witnessed a sharp correction last week, with London spot prices declining more than 33 percent from their all-time high of $5,594 recorded at the

Gold witnessed a sharp correction last week, with London spot prices declining more than 33 percent from their all-time high of $5,594 recorded at the end of January 2026. In the domestic market, MCX gold has also fallen significantly, correcting by over 23 percent during the same period. The selloff comes after a strong rally over the past two years, which pushed prices to record highs amid geopolitical tensions and macroeconomic uncertainty. However, the recent weakness reflects changing global cues, particularly a strong US dollar and expectations of further monetary tightening. While the declines have rattled investors, the larger question remains whether this is a temporary correction or a shift toward a deeper bearish trend.Why gold prices corrected so muchThe sharp correction in gold prices can largely be attributed to a combination of fundamental pressures and technical factors. A stronger US dollar has reduced the appeal of gold for global investors, while rising US bond yields have increased the opportunity cost of holding a non-yielding asset like gold. At the same time, expectations of further interest rate hikes by the US Federal Reserve have weighed heavily on sentiment. From a technical perspective, gold had rallied significantly over the past two years, leading to overbought conditions. This triggered profit booking and liquidation of long positions, amplifying the downward move.Why the US dollar is so strongThe US dollar has remained firm due to relative economic resilience in the United States and expectations of tighter monetary policy.

Strong labour market data, stable consumption trends, and persistent inflation have supported the dollar’s strength. Additionally, elevated US bond yields continue to attract global capital flows into dollar-denominated assets. Safe-haven demand has also played a role, as investors have preferred holding dollars amid global uncertainties. A stronger dollar typically moves inversely to gold, as it makes the yellow metal more expensive for holders of other currencies, thereby pressuring prices further.Expectations of US Fed policy outlookMarkets are currently pricing in the possibility of multiple Fed rate hikes or at least a prolonged period of higher interest rates. Persistent inflation concerns have forced the Fed to maintain a cautious stance, delaying expectations of monetary easing. Higher interest rates support bond yields and strengthen the dollar, both of which are negative for gold. The lack of clarity on the timing of potential rate cuts has further contributed to volatility in bullion prices. Until there is a clear shift in the Fed’s policy stance toward easing, gold may continue to face intermittent pressure in the near term.Impact of easing geopolitical tensionsThe ceasefire developments between the US and Iran have reduced immediate geopolitical risks, leading to a decline in the safe-haven premium embedded in gold prices. Earlier, geopolitical tensions had driven strong inflows into bullion as investors sought protection against uncertainty. However, with oil prices returning to pre-war levels and tensions easing, this premium has largely evaporated.