Gold hit a new lifetime high in both domestic and overseas markets last week. Uncertainty over US trade tariffs bolstered gold’s safe-haven appeal. Firm overseas prices, a record weak Indian Rupee, and stable demand offered additional support to domestic prices.
The yellow metal tested a high of $2,882 an ounce, gaining over 9 percent so far this year in the key London spot market, while domestic prices gained over 10 percent during the same period.
Recent threats by US President Donald Trump to impose tariffs on countries like Canada, Mexico, and BRICS nations have raised concerns over a potential trade war, shifting investor sentiment toward safe assets like gold and silver.
President Trump announced 25 percent tariffs on imports from Canada and Mexico and 10 percent on Chinese goods. He subsequently put these tariffs on hold for Canada and Mexico but not for China. Shortly after, China announced retaliatory tariffs on American products, including crude oil, coal, and LNG. The uncertainty surrounding these tariffs has caused market volatility, with investors seeking refuge in gold.
Gold is traditionally seen as a safe-haven asset during periods of instability. The tariff war has heightened concerns about inflation and economic growth globally, further boosting its demand. The tariff war has also affected currency markets, with the US dollar strengthening. While a stronger dollar typically makes gold more expensive for foreign buyers, the current safe-haven demand has outweighed this effect.
In addition to the firm overseas market, the remarkable rally in domestic gold is associated with the weak Rupee and prevailing high demand. India is the second-largest consumer of gold, meeting most of its needs through imports. When the rupee weakens against the US dollar, the cost of importing gold increases. This higher cost is passed on to consumers, causing a rise in domestic gold prices.The Indian rupee dropped to a lifetime low of 87.64 against the dollar last week. In the last 5 years, the INR has lost more than 24 percent, leading to higher domestic prices. Despite surging overseas prices, prevailing high demand is another reason for record-high rates in the country. As per reports, in addition to the existing jewelry demand, investment demand has been on the rise in the country. In 2024, investment demand, particularly in the form of gold ETFs, digital gold, and coins, surged by 29 percent to an 11-year high.The reduction in import duties helps to revitalize jewelry demand. The duty on gold was slashed to 6 percent in the previous year’s budget to curb illegal imports and make gold more affordable for customers. Looking ahead, the short-term outlook for the metal remains positive in the domestic market due to a weak currency and increased seasonal demand. However, intermittent corrections cannot be ruled out as prices are hovering at record highs.
Overseas prices remain volatile due to worries over trade and foreign policies implemented by the new US government and the performance of the US dollar. However, signs of easing geopolitical tensions and measures taken by various governments to boost economic growth are likely to gradually reduce gold’s safe-haven appeal.
(Hareesh V is Head of Commodities at Geojit Financial Services)
Times Prime Members Fest is here : 8 Days | 19 Gifts | Unmissable Experiences!
Become a Times Prime Member Now. visit timesprime.com