After scaling a fresh high in the beginning of the week, gold prices have corrected sharply. On Tuesday, Bloomberg spot Gold has plunged 6.3% to $4,082.03 an ounce, marking the biggest drop since 2013. The bullion held the losses throughout the week and ended at $4,113.05, which indicated $138.77 weekly drop was among the largest ever, Bloomberg reported.
On last Monday, gold prices rose to a new high of $4,381.52 an ounce before started crashing. Below are the top three factors behind the gold price crash.
Overbought
Many analysts and brokerages warned that the precious metal is overbought. Following an almost 30% surge in the bullion prices, gold specialists expected a drop in the prices.
"The rally, which began in April 2025, has been supported by expectations of a potential U.S. Federal Reserve rate cut, heightened geopolitical tensions, robust investment demand, and continued central bank accumulation. The most recent $250–$300 upswing was largely driven by increased safe-haven buying amid concerns over the ongoing U.S. government shutdown," said Satish Dondapati, a fund manager – ETF, Kotak Mutual Fund.
Profit Taking
Hedge funds likely have booked profits noting the recent record rally in bullion prices, as reported by Bloomberg. Some traders also suspected that Chinese banks might have sold the precious metals, which weighed on the prices.
Option traders have increased their put options bet on the Gold, Bloomberg reported.
Central Banks Cutting Back Gold Purchases
Many analysts believe that the recent rally is driven by gold purchases by the central banks. The buying from the central banks increased the most when sanctions on Russia were imposed in 2022.
JPMorgan believes that the biggest risk to bullion's value is a likely decrease in purchases of gold from major central banks across globe, Bloomberg reported.
Gold Prices To Remain Volatile In Short-Term
Analysts believe that volatility will exist in gold prices for near time. The bias is slightly negative until further clarity emerges on the macro side.
"In the near term, gold is likely to remain volatile due to uncertainty surrounding global trade policies and uncertainty over the U.S. shutdown. However, in the medium to long term, the key structural drivers for gold remain intact — including elevated global debt levels, persistent central bank demand, and ongoing geopolitical and inflationary pressures," said Dondapati.
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