Gold and silver prices on the Multi Commodity Exchange (MCX) experienced a sharp correction on Friday, falling significantly after a prolonged record-setting rally. Gold (24 kt) dropped by about 3 per cent, falling from a high of ₹1,32,294 to ₹1,25,957 per 10 grams, while silver saw an even steeper decline of over 8 per cent, dropping from ₹1,70,415 to ₹1,53,929 per kg.

Key Drivers of the Price Correction

Market analysts largely concurred that the correction was a “healthy” and “expected” development, primarily driven by a confluence of technical and fundamental factors:

1. Technical Correction and Profit-Booking (Immediate Catalyst)

• Overbought Conditions: Prior to the drop, both gold and silver were trading in technically “overbought” territory following a nearly two-month, one-sided surge. A pullback was technically necessary to normalize momentum indicators.
• Wave of Profit-Booking: The primary trigger was a massive wave of profit-booking by short-term traders and speculative investors. After the metals hit fresh lifetime highs, many chose to liquidate their positions to lock in the extraordinary gains, which accelerated the price slide.
• Stop-Loss Triggers: The initial downward movement likely triggered a cascade of stop-loss orders across multiple trading levels, which exacerbated the selling pressure and magnified the correction’s speed.

2. Easing Geopolitical and Economic Anxiety (Fundamental Drivers)

• US-China De-escalation: The easing of tensions between the U.S. and China, potentially involving planned talks or a more conciliatory tone from the U.S. regarding previously threatened high tariffs, reduced the market’s need for traditional “safe-haven” assets like gold and silver.
• Shifting Risk Sentiment: As geopolitical risk receded, capital rotated out of defensive assets (precious metals) and into growth-oriented or riskier assets, further draining momentum from the bullion market.
• Temporary Stability in Macro Indicators: Any temporary signs of stability in the global economic outlook or a decrease in immediate recession fears would diminish the safe-haven appeal of gold.

Underlying Bullish Fundamentals That Persist:

The rally that preceded the correction was rooted in deep, structural market forces that are still in play:

1. Central Bank Accumulation: Central banks globally have been net buyers of gold, diversifying their reserves away from the US Dollar.
2. Industrial Demand (Silver): Silver demand remains robust, driven by its critical use in the burgeoning renewable energy sector (solar panels), electronics, and electric vehicles.
3. Low Real Interest Rates: An environment of expected or persistent low real interest rates makes non-yielding assets like gold more attractive compared to fixed-income investments.