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John Mills, a market strategist at US-based financial services firm Morningstar, projected that gold could fall to $1,820 per ounce.
On Monday, March 31, the price of 24-carat gold was recorded at Rs 89,510 per 10 grams.
The soaring price of gold, which has reached record highs in recent months, has been a boon for investors but a burden for consumers purchasing jewellery. However, market analysts suggest a significant downturn could be on the horizon, potentially offering relief to buyers. Some forecasts predict a dramatic 38% drop in gold prices, a shift that could reshape investment strategies worldwide.
On Monday, March 31, the price of 24-carat gold was recorded at Rs 89,510 per 10 grams. If the anticipated decline materialises, prices could plummet to around Rs 55,496 per 10 grams, marking a substantial decrease.
John Mills, a market strategist at US-based financial services firm Morningstar, projected that gold could fall to $1,820 per ounce, a stark contrast to its current price of approximately $3,080 per ounce. This would equate to a nearly 38% reduction, a scenario that could dramatically alter the gold market.
Gold’s recent surge was driven by a mix of geopolitical uncertainty, economic instability, and inflation concerns. Investors flocked to gold as a safe haven, fearing fluctuations in the US economy and global markets. The ongoing trade tensions initiated during former US President Donald Trump’s administration exacerbated these concerns, further boosting demand for gold.
Despite the current bullish trend, Mills and other analysts believe a combination of factors could trigger a sharp decline in gold prices:
- Increased Supply: The global supply of gold has been rising rapidly. The second quarter of 2024 saw gold mining profits reaching $950 per ounce, their highest levels in years. This has incentivised increased production, with global gold reserves growing by 9% to 2,16,265 tonnes. Australia, in particular, has ramped up its gold production, while the recycling of old gold has also surged, adding further supply pressure that could drive prices down.
- Declining Demand Signals: While central banks and investors have been aggressively acquiring gold, recent data suggests this trend may not last. Central banks purchased 1,045 tonnes of gold last year, marking the third consecutive year of purchases exceeding 1,000 tonnes. However, a World Gold Council survey found that 71% of central banks anticipate reducing or maintaining their gold holdings rather than increasing them. Historically, after major crises such as the COVID-19 pandemic, gold prices have surged before subsequently declining as economic stability returns.
- Market Saturation: A spike in mergers and acquisitions (M&A) within the gold industry often indicates market peaks. In 2024, dealmaking in the gold sector surged by 32%, suggesting the market may be overheated. Furthermore, recent surges in gold-backed exchange-traded fund (ETF) investments resemble previous patterns observed before sharp price corrections, reinforcing concerns that a downturn could be imminent.
Despite Mills’ forecast, major financial institutions including Bank of America and Goldman Sachs remain bullish on gold. Bank of America forecasted that gold could climb to $3,500 per ounce within the next two years, while Goldman Sachs expects prices to reach $3,300 per ounce by year-end.
