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Context:
On Tuesday, gold prices surged above the psychological mark of ₹1 lakh per 10 grams for the first time, as the U.S. dollar weakened, influenced by Treasury bond sell-offs and ongoing tariff-related uncertainties.
- Spot Price: ₹1,01,245 per 10 grams for 24-carat gold.
- Futures Price: ₹99,000 per 10 grams.
Comparison to Previous Price Surges
- This surge mirrors the first wave of COVID-19 when gold breached the ₹50,000 mark in July 2020 amid global economic contraction, a weaker dollar, and supply chain disruptions.
- Gold has experienced a 30% surge this year, with the rally continuing for 128 weeks, signaling further potential rise until more clarity on economic conditions is achieved.
Factors Driving Gold’s Price Rally
- Weakening U.S. Dollar: The U.S. dollar fell to a three-year low below 98, boosting gold’s appeal.
- Trump’s Influence: President Trump increased pressure on the Federal Reserve, calling for drastic rate cuts and even suggesting the potential replacement of Fed Chair Jerome Powell.
- Trade War Tensions: Amidst ongoing trade disputes, China criticized U.S. tariffs and warned against deals that might undermine its interests, further strengthening safe-haven demand for gold.
Analyst Insights
- Renisha Chainani, Head of Research at Augmont, noted that gold has crossed $3,500 an ounce due to these factors, marking significant growth.
- Anitha Rangan, economist at Equirus Securities, indicated that gold’s rise is driven by reserve accumulation, geopolitical tensions, and comparisons to past rallies.
- Gold’s Reserve Share: As of 2024, gold’s share in reserves has risen to over 18%, up from 12% in 2019, reflecting a steady increase since 2021.
Outlook for Gold Prices
- Short-Term Outlook: The short-term outlook for gold remains strong, especially if U.S.-China trade tensions escalate.
- Long-Term Bullish Sentiment: Analysts like Satish Dondapati, fund manager at Kotak Mahindra Asset Management, believe gold’s long-term outlook is bullish, supported by central bank purchases and ongoing geopolitical uncertainties.
The surge in gold prices underscores its role as a safe-haven asset during times of global uncertainty, with strong demand expected to persist as economic and political tensions continue.
