Gold futures hit the 6% lower circuit on MCX today during the special Budget Day trading session, extending the sharp correction that began after last week’s historic global selloff.
Here are the key reasons behind today’s fall in gold:
1. Aftershock of gold’s worst crash in decades
Gold suffered its worst single-session fall in over 40 years late last week. Today’s lower circuit reflects continued unwinding of positions rather than a new negative trigger.
2. Profit booking after a sharp January rally
Gold had rallied strongly through January on safe-haven demand and expectations of aggressive US rate cuts. Once prices peaked, investors rushed to lock in profits, accelerating the decline.
3. Stronger US dollar pressure
The US dollar firmed up after US President Donald Trump announced former Federal Reserve Governor Kevin Warsh as his choice to lead the Federal Reserve. Markets view Warsh as relatively policy-conservative, reducing expectations of rapid rate cuts and pressuring gold.
4. Leverage and forced liquidation
Gold’s fall was amplified by margin calls, stop-loss triggers, and algorithmic selling across futures and options markets. Thin liquidity during parts of the session allowed prices to drop swiftly into the lower circuit.
5. Fading “debasement trade” narrative
Gold’s rally had been driven by fears of currency debasement and loose monetary policy. As confidence in policy stability improved, this narrative weakened, leading to a sharp reassessment of gold positions.
Why gold fell less than silver
Although gold hit a 6% lower circuit on MCX, its overall decline has been less severe than silver’s, due to deeper liquidity, lower leverage, and stronger institutional participation.
The bottom line
Gold’s 6% fall on MCX today reflects profit booking, dollar strength, leverage unwinding, and lingering shock from January’s historic crash. Even traditional safe-haven assets can see sharp corrections when sentiment turns after crowded rallies.
