Gold Rates Tumble Below Rs 1,25,000: Understanding the Decline in Jewellery Prices

Gold prices have recently experienced a significant correction, falling below Rs 1,25,000 per 10 grams in India. This drop follows a period of record highs, leaving investors and consumers wondering about the factors driving this change and its impact on the jewellery market. Several key elements are contributing to this price decline.

Factors Influencing the Fall

• Strengthening US Dollar: A stronger US dollar typically leads to lower gold prices. Since gold is often priced in USD, a stronger dollar makes it more expensive for investors holding other currencies, decreasing global demand. On October 21, 2025, the Dollar Index (DXY) surged, acting as a critical trigger for the gold price correction.
• Easing Geopolitical Tensions: Gold is often seen as a safe-haven asset during times of global uncertainty. Reduced geopolitical tensions or the prospect of peace deals can decrease the appeal of gold, as investors become more willing to take risks in other markets. Recent signals of progress in US-China trade negotiations have contributed to this.
• Rising Interest Rates: Expectations of rising interest rates can make gold less attractive compared to interest-bearing investments like bonds. When interest rates increase, investors may shift from gold, which doesn't provide returns, to assets offering higher yields. Markets have re-priced expectations that the Federal Reserve might cut rates later than anticipated.
• Overbought Market Conditions: After a prolonged period of rising prices, the gold market may become overbought, leading to a natural correction. As the market becomes saturated, profit-taking by investors can trigger a sharp decline.
• Profit-Taking: A sharp rally in gold prices often triggers profit-taking by investors looking to secure their gains. This selling pressure can accelerate the price decline.
• Reduced Central Bank Buying: A temporary reduction in aggressive gold purchasing by central banks has removed a key support for high gold prices. This shift in institutional demand can create an opening for speculative selling.
• Improved Economic Indicators: Positive economic news and anticipated interest rate hikes can lead investors to favor other assets over gold. Economic stability reduces the need for safe-haven assets like gold.
• End of Seasonal Demand: Demand for gold often decreases after major festival seasons like Diwali, reducing buying activity in key markets.

Impact on Jewellery Prices and Demand

The fall in gold prices has a direct impact on the jewellery market. Lower gold prices can lead to a decrease in jewellery prices, potentially stimulating demand. Price-conscious buyers, in particular, may find this an opportune time to purchase gold jewellery.

However, the relationship between gold prices and jewellery demand isn't always straightforward. While lower prices can boost sales, other factors, such as consumer sentiment and economic conditions, also play a significant role.

• Increased Consumer Inquiries: In India, the price dip has temporarily increased consumer inquiries ahead of the festive season.
• Wait-and-See Approach: Some consumers, particularly in China, are adopting a "wait-and-watch" approach, anticipating further price declines.
• Potential for Renewed Interest: Retailers in the UAE expect renewed consumer interest if 24-karat gold stays below Dh500 per gram.
• Weakening Jewellery Demand: Second-quarter gold jewellery demand was the worst since the third quarter of 2020, as consumers reacted to high prices.

Market Outlook

The immediate outlook for gold prices appears to be lower, but investors should monitor key trends before making any decisions. Factors like Federal Reserve policy, geopolitical developments, and inflation persistence could support gold's recovery. Despite the recent correction, gold remains up significantly for the year, supported by central bank purchases and concerns about government deficits and weakening currencies.

Investor Considerations

The recent volatility in gold prices underscores the importance of emotional discipline and informed decision-making. Investors should stay updated on market trends and seek professional advice when needed. While gold is often considered a safe-haven asset, it's crucial to remember that no market operates in a vacuum.