Gold hit new record highs in both domestic and overseas markets last week. Uncertainty over US trade tariffs boosted gold’s safe-haven appeal. Strong overseas prices, a record weak Indian rupee and steady demand lent additional support to domestic prices.
- Gold hits new low near $2,859 after NFT
- Spot Gold Forecast [07-02-2025]
- What to expect from the next Nonfarm Payrolls report?
- India left China behind in gold purchase
- MCX Copper Hits 4-Month High 859
The Gold (yellow metal) hit an all-time high of $2,886.77 an ounce in the key London spot market, up more than 9 per cent so far this year, while domestic prices rose more than 10 per cent during the same period.
Recent threats by US President Donald Trump to impose tariffs on countries such as Canada, Mexico and the BRICS nations have raised concerns about a potential trade war, causing investors to turn to safe assets such as gold and silver.
President Trump announced tariffs of 25 per cent on imports from Canada and Mexico and 10 per cent on Chinese goods. He then halted these tariffs for Canada and Mexico, but not for China. Soon after, China announced retaliatory tariffs on US products including crude oil, coal and LNG. The uncertainty around these tariffs has led to volatility in the market, causing investors to look to invest in gold.
Gold is traditionally considered a safe-haven investment during times of volatility. The tariff war has raised concerns about inflation and economic growth globally, further boosting its demand. The tariff war has also impacted currency markets, strengthening the US dollar. While a strong dollar typically makes gold more expensive for foreign buyers, the current safe-haven demand has mitigated this effect.
Apart from the strength in the overseas market, the significant surge in domestic gold is linked to the weak rupee and current 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 gold imports increases. This increased cost is passed on to consumers, leading to a rise in domestic gold prices.
Last week, the Indian rupee fell to its all-time low of 87.64 against the dollar. In the last 5 years, the INR has depreciated by more than 24 per cent, leading to a rise in domestic prices. Despite the surge in prices abroad, the current high demand is another reason for record-high rates in the country. According to reports, apart from the current jewellery demand, investment demand is on the rise in the country. In 2024, investment demand, especially in the form of gold ETFs, digital gold and coins, grew by 29 per cent to an 11-year high. A reduction in import duty helps revive jewellery demand. Duty on gold was reduced to 6 per cent in last year’s budget to curb illegal imports and make gold more affordable for customers. Looking ahead, the short-term outlook for the metal in the domestic market remains positive due to a weak currency and increased seasonal demand.
However, intermittent corrections cannot be ruled out as prices remain at record highs. Overseas prices remain volatile due to concerns over the trade and foreign policies implemented by the new US government and the performance of the US dollar.
However, signs of easing geopolitical tensions and steps taken by various governments to boost economic growth are likely to gradually diminish gold’s safe-haven appeal.
