Why is the glittering gold losing its sparkle?

Gold has always occupied an important place in finance. It pays no dividend, produces no cash flow, and yet investors have trusted it for centuries as a store of value.

Gold’s decline in Indian Rupees: Explained

In 2026, that trust was dramatically tested: gold surged to a record near $5,600 per ounce (₹1,71,460 per 10 grams) in late January, then recently fell below $4,000 (₹1,22,470 per 10 grams), roughly 29% below its peak. Let’s dive deep:

Factors that affect the price of gold

1. Inflation:


Gold is often known as the ‘Hedge Against Inflation’. When the prices of goods and services rise over time, reducing the purchasing power of money, investors buy gold to protect their wealth. This can push gold prices higher.

2. Interest rates:

Gold does not pay interest or dividends. Therefore, when interest rates rise, investments such as fixed deposits and bonds may become more attractive compared to gold. This also puts pressure on the price of gold and makes it less attractive.

3. US Dollar movement

When the dollar strengthens, gold can become more expensive for buyers using other currencies, which may reduce demand. When the dollar weakens, gold often becomes more attractive.

For Indian investors, a weaker rupee can also make imported gold more expensive, even if international gold prices remain unchanged.

4. Demand & supply

Like any other commodity, gold prices are affected by demand and supply.

Higher demand: Increased purchases of jewellery, gold bars, coins and gold ETFs can support prices.

Lower supply: Reduced mine production or limited recycled gold supply can put upward pressure on prices if demand remains strong.

5. Crude oil prices

Crude oil is basically used to produce petrol, diesel and other fuels. When crude oil prices rise, inflation tends to increase. To control it, central banks raise interest rates. Since gold pays no interest, higher rates on bonds and fixed deposits make them more attractive, and investors shift money out of gold.

Correlation of gold with other asset classes

Asset Class	Correlation
Equities	Low Correlation in the Long Term
Bonds	Negative
US Dollar	Negative
Crude Oil	Negative

Reasons for the rally

Gold had a record-breaking rally in 2025 and rose 65%

1. Geopolitical tensions:

Drivers into January 2026 were US-Iran tensions and a rapidly falling US dollar, pushing investors towards gold as a safe-haven asset.

2. Central Bank buying gold

Central Banks usually buy gold to reduce dependence on the US Dollar, to protect against economic uncertainty, and to diversify their reserves. When central banks purchase large quantities of gold, the additional demand can support global gold prices.

3. Inflation & energy shocks

Surging crude oil and energy prices increase broader inflation concerns, influencing investors to seek assets like gold to hedge against erosion of purchasing power.

Reasons for the fall

1. US bond yields are rising

US Treasury yields have moved sharply higher. The 10-year yield is around 5.13%, while the 30-year yield is around 5.44%. Higher yields make interest-bearing assets relatively more attractive than gold.

2. With rising crude oil prices, inflation fears are back

Brent crude moved above $107/barrel in September 2026 (Price as of 28th Oct stands at $114.6/barrel). Higher oil prices can push inflation higher, creating pressure on the Fed to keep rates high or raise them further.

3. The US dollar has strengthened

The USD-INR was around 101.39, close to a two-month high. Gold and silver are priced internationally in dollars, so a stronger dollar generally makes them more expensive for non-US buyers and can reduce demand.

4. Profit booking after a massive rally

The World Gold Council says September's pullback was associated with changing Fed expectations and softer global gold ETF flows.

The road ahead?

Gold’s recent journey is a reminder that even the oldest asset in the world is not immune to market fluctuations. What has not changed is gold’s role in a portfolio. And I personally believe that if you want to hold gold as part of your portfolio, invest in a staggered manner instead of trying to time the market, and consider gold ETFs or gold funds for convenience and transparency.

Author: Sharad Bindal, Director, BFC CAPITAL Private Limited

Sources:

1. Reference 1
2. Reference 2
3. Reference 3
4. Reference 4
5. Reference 5

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