Geopolitical Uncertainty To Inflationary Pressures; Key Factors Behind Surge In Gold Prices

Gold Price: Since the outset of 2024, gold prices have surged by 9 per cent in rupee terms, reaching Rs 71,000 per 10 grams

Gold Price: Persistent concerns over rising inflation have also played a significant role in driving up gold prices.

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Gold prices have soared to record highs in recent weeks, defying expectations. The yellow metal, long regarded as a traditional store of value during times of turmoil, has seen a resurgence in demand as geopolitical tensions, inflationary concerns, and market volatility continue to roil global financial markets. Since the outset of 2024, gold prices have surged by 9 per cent in rupee terms, reaching Rs 71,000 per 10 grams.

This represents a remarkable 69 per cent increase in rupee value since the onset of the Covid-19 pandemic in March 2020. Comparatively, the Sensex has seen a 43 per cent rise, excluding a brief dip in March 2020, highlighting why gold is widely regarded as a safe haven and a hedge against currency devaluation and inflation by Indian households. Its enduring appeal is evident. The key reasons behind the surge in gold prices can be attributed to a number of factors in the following.

Geopolitical Uncertainty

Heightened geopolitical tensions in various regions around the world, including escalating conflicts and diplomatic standoffs, have fueled fears of instability and prompted investors to seek refuge in gold. Geopolitical risks, such as trade disputes, political unrest, and military conflicts, often drive up demand for safe-haven assets like gold, as investors look to protect their wealth from potential upheavals.

Inflationary Pressures

Persistent concerns over rising inflation have also played a significant role in driving up gold prices. Central banks worldwide have implemented unprecedented monetary stimulus measures in response to the economic fallout from the pandemic, leading to fears of currency devaluation and a potential surge in inflation. Gold, historically viewed as a hedge against inflation, has attracted investors seeking to preserve the purchasing power of their wealth amid inflationary pressures.

Market Volatility

Volatility in financial markets, exacerbated by uncertainty surrounding economic recovery prospects, interest rate hikes, and corporate earnings, has further boosted demand for gold as a safe-haven asset. The recent turbulence in equity markets, characterised by sharp swings and abrupt sell-offs, has prompted investors to seek out assets perceived as less risky, driving up demand for gold and pushing prices higher.

Technical Factors

Technical factors, including chart patterns and momentum trading, have also contributed to the rally in gold prices. As the metal breached key resistance levels and triggered buy signals, momentum-driven traders and institutional investors piled into the market, amplifying upward price movements and fueling momentum further.

Implications on India Imports

Between April and December 2023, gold prices remained relatively stable, averaging around Rs 63,000 per 10 grams. This stability spurred robust demand, with imports surging by 26.7 per cent to $36 billion during this period. A Reuters report suggests that gold demand in March is anticipated to plummet by 90 per cent due to a 10 per cent price hike. India is poised to maintain its position as the world's second-largest consumer of gold, but it's likely that demand might fall short of the 900 tonnes forecasted by the World Gold Council earlier this year.

Analysts View

Analysts remain bullish on gold outlook, forecasting continued strength in prices as long as the underlying drivers of uncertainty persist. However, they caution that gold's rally may face intermittent pullbacks and periods of consolidation, as market dynamics evolve and sentiment shifts.