Gold prices declined in early Asian trade on Monday as global financial markets witnessed subdued activity with the United States and China - two of the world’s largest trading hubs - closed for public holidays. The reduced liquidity environment encouraged traders to book profits following a strong rally in the previous session driven by softer U.S. inflation data.

Spot gold slipped about 1.1 percent to $4,988.04 per ounce, while U.S. gold futures for April delivery fell roughly 0.8 percent to $5,006.60 per ounce. The decline comes after bullion had surged around 2.5 percent on Friday, highlighting the tendency of commodities to correct sharply when trading volumes thin out.

Market participants attributed the weakness largely to technical factors rather than any fundamental shift in the outlook. According to analysts, the absence of major trading centres reduces order flow, amplifying price swings in either direction. In such conditions, even modest profit-taking can trigger outsized moves.

The rally that preceded Monday’s decline was sparked by fresh data from the U.S. Labor Department showing that the Consumer Price Index rose 0.2 percent in January, lower than the 0.3 percent increase expected by economists. The moderation in inflation reinforced expectations that the Federal Reserve could begin cutting interest rates later this year, a scenario that typically benefits non-yielding assets such as gold.

However, central bank signals remain mixed. Chicago Federal Reserve President Austan Goolsbee indicated that while rate cuts are possible, persistent services inflation continues to pose a challenge. Markets currently expect the Fed to hold rates steady at its upcoming March meeting, with cumulative rate reductions of around 75 basis points priced in for the remainder of the year and the first cut anticipated around mid-year.

Lower interest rates reduce the opportunity cost of holding gold, which does not offer interest income, thereby supporting demand from both institutional investors and central banks. At the same time, the trajectory of the U.S. dollar remains a crucial variable. Analysts note that a sustained weakening of the dollar would be required for bullion to attempt another major upward leg toward new highs.

Adding to the complex backdrop are rising geopolitical tensions.

Reports indicate that the U.S. military is preparing contingency plans for a prolonged operation against Iran should political authorization be granted. Escalation in West Asia historically drives safe-haven demand for gold, suggesting that geopolitical developments could quickly reverse the current pullback if risks intensify.

Other precious metals mirrored gold’s weakness but with varying degrees of decline. Silver, which tends to exhibit higher volatility due to its dual industrial and investment demand, dropped as much as 3.2 percent after a strong gain in the prior session. Platinum and palladium also edged lower, reflecting cautious sentiment across the broader metals complex.

For India, the world’s second-largest consumer of gold, global price movements directly influence domestic bullion rates, jewellery demand, and import bills. A temporary correction may support retail buying ahead of the wedding season, especially after prices had surged to record levels in recent months. However, sustained high prices continue to dampen discretionary purchases in price-sensitive segments.

From a macroeconomic perspective, elevated gold prices widen India’s trade deficit by increasing import costs, which in turn can exert pressure on the rupee. Conversely, moderate price declines help ease this burden. The Reserve Bank of India, which has steadily accumulated gold as part of its foreign exchange reserves, also benefits from long-term price appreciation even amid short-term volatility.

Sectorally, domestic jewellery retailers and bullion traders are most sensitive to price swings. Sharp rallies tend to suppress volumes but boost inventory valuations, while corrections stimulate demand but compress margins if hedging is inadequate. Financial products linked to gold, including exchange-traded funds and sovereign gold bonds in the secondary market, also respond quickly to global cues.

A bullish scenario for gold hinges on three key triggers: faster-than-expected U.S. rate cuts, a weakening dollar, and heightened geopolitical tensions. Any combination of these factors could revive upward momentum and potentially push prices toward new highs later in the year.

On the bearish side, stubborn inflation, delayed policy easing, or a stronger dollar could limit gains or trigger deeper corrections. Additionally, if geopolitical tensions ease, safe-haven demand may soften, reducing one of gold’s major support pillars.

The principal risk for investors lies in the metal’s increasing sensitivity to macro signals rather than physical demand alone. Rapid shifts in expectations around monetary policy can produce abrupt price movements, making short-term forecasting particularly challenging.

Overall, Monday’s decline appears more technical than structural. The broader trend continues to be shaped by interest rate expectations, currency movements, and geopolitical developments.

As global markets reopen and liquidity normalizes, gold’s next directional move will likely depend on fresh economic data and policy signals rather than holiday-driven volatility.