Gold crashes to 11-week low, but experts still see upside: Is this a buying opportunity or a warning sign?

Gold price outlook: Gold prices have come under intense pressure, slipping to an 11-week low as investors reassessed the outlook for US interest rates, the dollar and global inflation. Spot gold fell 1.3% to $4,206.08 per ounce today, 10 June, touching its lowest level since March 23 and extending losses from the highs seen during the Iran conflict.

The precious metal has now fallen nearly 20% from levels seen before the Iran war erupted at the end of February. The decline has surprised many investors, particularly given the renewed geopolitical tensions between the United States and Iran. However, market experts believe the recent weakness is being driven more by monetary policy concerns than by geopolitical risks.

Despite the correction, analysts continue to maintain a constructive long-term outlook on gold, citing central-bank demand, temporary inflation pressures and expectations that investment demand will return once uncertainty around US monetary policy eases.

Why gold prices are declining

The latest leg of the sell-off followed stronger-than-expected US economic data, rising oil prices and growing concerns that the US Federal Reserve could keep interest rates higher for longer.

The United States launched strikes against Iran after President Donald Trump said Tehran had shot down a US Apache helicopter in the Strait of Hormuz. Iran responded with attacks on a US base in Jordan and other targets across the Gulf region. The escalation pushed oil prices higher and fuelled fears of persistent inflation.

Higher inflation expectations have prompted traders to price in a more than 70% probability of a US rate hike by December. Rising interest rates typically hurt gold because the metal does not generate any yield, making interest-bearing assets relatively more attractive.

The situation has also strengthened the US dollar, another negative factor for gold prices. In addition, gold recently broke below its 200-day moving average, a key technical indicator closely watched by institutional investors. The move triggered additional selling pressure in both physical and futures markets.

Carsten Menke, Head Next Generation Research at Julius Baer, said, “Last week’s US labour market report caused a sell-off in precious metals as investors focused on higher US interest rates and a stronger dollar. As a result, selling intensified in both physical and futures markets.”

Menke added, “The market is concerned that the Federal Reserve may tighten policy in response to persistent inflation and resilient economic growth. This has led to renewed investor outflows, particularly from physically backed gold investment products.”

Why experts remain bullish on gold

Despite the near-term weakness, analysts believe the broader fundamentals supporting gold remain intact.

According to Menke of Julius Baer, part of the inflationary pressure currently affecting markets is likely to prove temporary. If inflation moderates in the coming months, the Federal Reserve may not need to raise interest rates as aggressively as investors currently expect. Such a scenario could revive investment demand for gold.

More importantly, Menke continued to highlight central-bank buying as the strongest long-term support for the precious metal. Emerging-market central banks have been steadily increasing their gold reserves as they seek to reduce dependence on the US dollar. Julius Baer expects this trend to continue for another three to five years, providing a powerful structural tailwind for gold.

“Gold should furthermore benefit from continued central-bank buying, which we see as the strongest structural force in the precious metal markets. It is a distinctive feature for gold, which other metals do not have. Reflecting the emerging economies’ desire to be less dependent on the US dollar as a reserve currency and a below-average share of gold in their reserves, buying should continue for another three to five years,” noted the expert.

The firm believes that once markets gain clarity on US monetary policy, investor interest in gold could return, helping prices recover from current levels.

“Despite the recent weakness, we still see a favourable fundamental backdrop for gold. We remain Constructive on gold, Neutral on silver, and reiterate our long-position in the gold/silver ratio. That said, volatility is set to stay elevated as long as the Iran war lasts and concerns about a tightening of US monetary policy persist as the precious metal markets struggle to price this properly,” Menke said.

Meanwhile, technical indicators suggest that gold remains in a consolidation phase rather than entering a prolonged bear market.

Jateen Trivedi, Vice President Research Analyst – Commodity and Currency at LKP Securities, said, “Gold prices remained largely range-bound, with MCX Gold near ₹154,700 as rupee strength capped gains despite COMEX gold holding above $4,325. Investors are now focused on upcoming US inflation data and Fed commentary.”

Trivedi added that gold is expected to trade in the ₹153,500–156,000 range in the near term.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.