Why are gold prices suddenly dipping? All you need to know

Gold losing the sheen: Well, gold prices took a bit of a dive on Tuesday, hitting their lowest levels in over two weeks. Seems like worries about the Middle East crisis calming down and some investors deciding to cash in on their gains were the main reasons behind the drop.

Spot gold was down nearly 1 per cent at $2,304.99 per ounce, as of 0336 GMT US gold futures fell 1.2 per cent to $2,318.80.

The previous session was a rough ride for gold, plunging over 2 per cent in what was its biggest one-day tumble in over a year. It seems like once Iran said it wasn't planning to retaliate after an Israeli drone attack, folks felt a bit less worried about a bigger conflict.

Gold prices have taken a hit recently, with analysts pointing to reduced expectations of imminent rate cuts by the US Federal Reserve as a primary factor. According to reports, the possibility of a rate cut might not materialise until September. This has led to a decrease in demand for gold as investors view it less favourably as a hedge against inflation.

Moreover, the strengthening of the US dollar and the rise in bond yields have contributed to the downward pressure on gold prices, exacerbating the trend.

Economic data focus

Also, looking forward, all eyes are on the economic data coming out of the US later this week, especially GDP figures on Thursday and the Personal Consumption Expenditures (PCE) print on Friday. If those numbers come in better than expected, it might delay any hopes of rate cuts by the Federal Reserve, which could mean more trouble for gold prices in the short term.

Gold has experienced a surge in value recently, jumping over 50 per cent since February 2020, just before the COVID-19 pandemic swept across the globe. In the last two months, the price has surged nearly 20 per cent in the last two months alone.
Unlike many other commodities, gold's value is predominantly driven by investor perception rather than specific utility. Unlike stocks and bonds, it doesn't provide dividends or coupon payments. Yet, despite lacking these features, gold remains highly coveted.

Central banks have been the primary drivers of the market. Institutional and government buyers, particularly in China, have displayed a significant appetite for gold, further propelling its prices.

Now, this week's US inflation and GDP data will provide more clarity on the US Fed rate cut and that in turn will give more clarity as to how gold prices will behave going forward.