Surprising drop in Sri Lanka's gold price

By the first half of 2026, gold prices were at a historically high level, with the price of an ounce of gold reaching approximately US$5,600 by late January. Due to this, some economic forecasts had speculated that the price of an ounce of gold could rise to US$6,000.

However, during the period when the conflict between the United States and Iran escalated, the price of an ounce of gold fluctuated between US$5,000 and US$5,200.

Although gold prices were expected to rise further amidst this global crisis, the pace of that increase has weakened in recent weeks. According to data from the Sri Lanka Gem and Jewellery Association (SLGJA), the price of an ounce of gold significantly dropped to US$4,100 on March 23, and then slightly increased to US$4,300 on March 24 due to a five-day temporary pause in conflicts in the Middle East.

The primary reason for this decline in gold prices is the rapidly rising inflation worldwide, including in the United States. This inflation has limited the ability of the American Federal Reserve to lower interest rates. Normally, lower interest rates stimulate economic growth and also support an increase in gold prices. However, due to persistent inflation, policymakers have been forced to maintain high interest rates, which has reduced the attractiveness of gold as an investment for investors.

Mr. Sellakumar Kandasamy, Head of the Jewellery Sector at the Sri Lanka Gem and Jewellery Association, points out that gold is an asset that does not generate any regular income, such as interest. Therefore, he explained that profit can only be made from it by selling it when its price increases.

Meanwhile, Mr. Kandasamy further stated that the decline in gold prices has been intensified by the global stock market crash. Many investors who rely on borrowed capital have been forced to quickly sell their assets, including gold, to cover losses incurred when stock prices fall. The combination of these two major factors – investors being forced to sell their assets and the inability to lower interest rates due to inflation – has accelerated this decline in gold prices.