Gold Prices Continue to Fall: Could Prices Drop Further Before Diwali?

Global market conditions, a stronger US dollar and investor profit-taking have put gold prices under pressure. With the festive season approaching, investors and consumers are closely watching whether gold could decline further before Diwali.

Gold prices have recently come under pressure in international markets after reaching a monthly high of $4,658 per ounce on August 25. Since then, prices have fallen by around 7.11%, with gold trading at approximately $4,327 per ounce on September 22.

The latest price was 0.36% lower than the previous day`s close and 1.57% below the previous week`s high. Despite the recent decline, gold remains well above its yearly low. According to Trading Economics data, the current price is still around 8.83% higher than the one-year low of $3,976 per ounce recorded on July 16.

Why Are Gold Prices Falling?

The recent decline is being driven by several factors in global financial markets.

Rising geopolitical tensions involving the US and Iran, along with a stronger US dollar, have encouraged some investors to book profits following the strong rally in gold prices.

Movements in crude oil and currency markets are also influencing gold. On September 22, crude oil futures rose 1.05% to around $101.39 per barrel during morning trading. At the same time, the US dollar strengthened to around ₹95.65 against the Indian rupee.

A stronger dollar can put pressure on gold because the precious metal becomes relatively more expensive for buyers using other currencies.

Gold Investment Demand Rises in India

Investment demand for gold in India has remained strong even as physical jewellery demand faces some pressure.

According to a report released by Augmont Bullion on September 21, investment-oriented gold purchases are currently outperforming physical gold buying.

Gold ETF investments in India increased by 67% in August to around ₹26 billion, while digital gold purchases reached approximately ₹25 billion during the month.

With Dussehra expected in late October and Diwali in early November, festive demand could provide further support to the domestic gold market.

The report suggested that consumers could return to the market more actively if the domestic price of 10 grams of gold falls towards ₹1.50 lakh. For now, however, many investors appear to be taking a wait-and-watch approach.

Old Gold Sales Add to Market Supply

Data from the World Gold Council and Augmont Industries indicates that sufficient gold is currently available in the Indian market.

Demand from the wedding jewellery segment remains steady, but many consumers are also selling old jewellery to fund purchases of new ornaments.

This has contributed to domestic gold trading at a discount of around 2%, or as much as $78 per ounce, compared with its landed cost.

Amid the recent price volatility, jewellery retailers are also showing limited interest in building fresh inventory from wholesalers.

Key Gold Price Levels to Watch

Market analysts currently see international spot gold trading within a broader $4,250–$4,450 per ounce range, while maintaining an underlying bullish trend.

Investors are closely watching these levels for signs of the next major price movement. A sustained move above key resistance levels could potentially push gold towards $4,600–$4,700 per ounce.

On the other hand, a break below important support levels could increase the possibility of another correction.

US Federal Reserve Policy Could Influence Gold

US monetary policy remains another important factor for the gold market.

Gold recently received some support as the US dollar weakened slightly and concerns over inflation eased amid falling oil prices. Crude oil prices have declined sharply in recent sessions, supported by increased exports from Saudi Arabia and hopes for diplomatic discussions between the US and Iran.

Lower oil prices could ease inflationary pressures and reduce the need for further interest-rate increases by the US Federal Reserve.

The Federal Reserve has raised interest rates by 25 basis points, taking the target range to 3.75%–4.00%. Higher US interest rates generally support the dollar and increase the opportunity cost of holding gold, which does not generate interest income.

According to Manav Modi, Commodities Analyst at Motilal Oswal Financial Services, if oil prices remain lower, the need for additional rate hikes could diminish. However, the outlook for gold will continue to depend on developments in geopolitical tensions, diplomatic negotiations, inflation and US monetary policy.

Will Gold Fall Further Before Diwali?

The next major move in gold prices will depend on several factors, including US Federal Reserve policy, crude oil prices, currency movements, geopolitical developments and domestic festive demand.

With Dussehra and Diwali approaching, Indian consumers and investors will be closely watching international gold prices and domestic rates. A further decline could encourage fresh buying, while a recovery in global prices could keep consumers cautious.

For now, the gold market remains highly sensitive to global economic and geopolitical developments, making the coming weeks particularly important for investors and jewellery buyers.

Disclaimer: Gold prices can change rapidly based on domestic and international market conditions. The information provided above is for general awareness and should not be considered investment advice.