Gold, often considered a safe-haven asset, has experienced a notable correction, with prices falling around 20% from their high point in January. This sharp decline has prompted global investors to redeem $3.01 billion from physically backed gold exchange-traded funds (ETFs) last week, marking the first net outflows after 13 consecutive weeks of inflows.
According to data from the World Gold Council (WGC), the total investments in gold ETFs last week stood at $1.80 billion, significantly less than the redemptions. US investors accounted for the largest share of these withdrawals, pulling $1.7 billion as gold prices dipped below $4,000 an ounce. On Monday evening, gold was trading around $3,995 an ounce.
Why Gold Prices Are Under Pressure
The recent slide in gold prices is attributed to a confluence of factors. A stronger US dollar, rising bond yields, and persistent inflation concerns have all contributed to reducing the appeal of non-yielding assets like gold. Elevated crude oil prices have also influenced interest-rate expectations, further pressuring the precious metal.
Renisha Chainani, chief research officer at Augmont, noted that gold recorded its worst weekly performance since June, citing oil prices, currency movements, and forced selling as key drivers of the intensified market pressure. Darshan Desai, CEO of Aspect Bullion & Refinery, highlighted the upcoming US Federal Reserve meeting as a critical event that will likely determine the near-term direction for gold prices.
Is This the Right Time to Invest?
For investors contemplating new exposure to gold, the current correction doesn't automatically imply the metal is cheap. Deepak Shenoy, CEO of Capitalmind, cautioned that gold does not deliver consistent returns annually and can undergo prolonged periods of stagnation or even negative returns. He pointed out that domestic gold prices had fallen approximately 20% from their January 2026 peak, despite a government increase in import duty from 6% to 15% in May.
The decision to invest depends heavily on an individual's investment horizon, existing portfolio allocation, and the specific role gold is intended to play. Prithviraj Kothari, managing director of RiddiSiddhi Bullions and president of the India Bullion and Jewellers Association, suggested that central-bank buying and Indian ETF inflows are providing some support. He also anticipates that demand during Dhanteras and Diwali will help cushion further price declines, recommending staggered buying near support levels ahead of the Fed decision.
Staggered purchases can mitigate the risk of committing a large investment at an unfavorable price, but they do not eliminate the possibility of losses if gold continues to decline. Investors should also differentiate between physical gold, gold ETFs, and other gold-linked products, as each carries distinct costs and risks. While gold ETFs avoid jewellery-making charges, they remain fully exposed to market price fluctuations.
Ultimately, for long-term investors, the focus should remain on portfolio diversification rather than attempting to time the market's bottom. While gold can serve as a valuable diversifier, Shenoy's warning about potential extended periods of low or negative returns remains a crucial consideration.