The ongoing fall in gold prices has surprised many, as the metal usually performs well when the equity markets are under stress. Given the current environment, should investors be rushing to buy gold while prices are low?

The recent decline in gold prices has left investors in a quandary. Traditionally, gold has been considered a haven during economic uncertainty, a store of value when other markets falter. However, the current situation has defied this long-standing trend, raising a critical question: Is this the right time to buy gold amidst falling rates?

The backdrop to this question is the shifting dynamics of the global economy, particularly in the wake of Donald Trump’s victory in the US elections. The impact on gold was immediate as the dollar strengthened following the election results. A rising dollar typically reduces demand for gold, making the precious metal more expensive for buyers holding other currencies. When the dollar appreciates, it offers an attractive alternative for investors, especially in uncertain times. Additionally, the strengthening dollar has been accompanied by rising interest rates in the US, further discouraging gold investments. Rising rates often make fixed-income assets, like bonds, more appealing than gold, which does not generate interest or dividends.

This fall in gold prices has surprised many, as the metal usually performs well when the equity markets are under stress. Gold has historically been seen as a way to balance an investment portfolio, mainly when stocks perform poorly or when inflation is high. However, this time, the opposite has occurred. Gold prices have been downward, with some analysts suggesting that the price drop is the largest in years. According to reports, gold saw its most significant weekly drop in three years during mid-November 2024, fueled by strong US economic data, rising interest rates, and diminishing inflation concerns.

Gold’s historical reputation as a haven asset stems from its ability to retain value in times of crisis. However, this dynamic appears to be changing. In the current climate, inflation cooling, particularly in the US, has reduced the pressure on gold. With inflation fears subsiding, the demand for gold as a hedge against inflation has diminished. This shift has been compounded by strong job reports in the US and better-than-expected economic data, signaling a stable recovery and reducing the need for gold as an inflationary hedge.

Some analysts argue that falling gold prices present an attractive opportunity for long-term investors. They believe that gold will again rise in value as the global economy faces future uncertainties, including geopolitical tensions and potential inflation. However, others recommend caution. The decline in gold prices reflects broader economic trends, and it may not be a temporary blip. Experts suggest a gradual approach for those who do decide to invest in gold. Instead of buying a large amount at once, they recommend spreading purchases over time to avoid the risk of buying into a market that may continue to fall.

The drop has been concerning. While prices have fallen in India, where gold is culturally and economically significant, global demand for gold remains strong, especially from central banks. This contrasting trend between falling retail gold prices and strong international demand highlights a crucial point for investors: gold continues to be valued by institutional investors, even if its price is temporarily subdued for the retail market.

For those looking to invest in gold, now may be a good time to consider buying in small quantities rather than making a significant investment all at once. Buying gold during falling prices depends on an investor’s risk tolerance and investment horizon. Despite its recent decline, gold may still be a worthwhile investment for those looking to hedge against future uncertainties. However, potential buyers should approach with caution and a well-thought-out strategy, considering that gold’s price may fluctuate in response to economic conditions and global market dynamics.

The writer is a senior journalist and a columnist. Views expressed here are his personal. Twitter @NarvijayYadav