Rising tensions between Israel and Iran are now clearly impacting global markets, particularly gold prices.
Gold price: Volatility has returned to global markets. This time, the cause is the escalating military tension between Israel and Iran, pushing investors worldwide to seek safe haven assets. In this environment, gold has once again emerged as the preferred choice for investors. As a result, gold prices in the domestic market have hit a new record high.
On Friday, the price of 24-carat gold reached ₹101,540 per 10 grams in major cities across the country, including the national capital, Delhi. This figure is the highest ever recorded in India. Gold also crossed ₹100,000 per 10 grams for the first time on the Multi Commodity Exchange (MCX). This is not merely a fleeting surge but a combined effect of economic and political circumstances.
Reasons for the Rise in Gold Prices
The primary driver of this sharp increase in gold prices is geopolitical tension. Israel recently targeted several Iranian military and nuclear sites, creating uncertainty throughout the Middle East. This conflict has instilled a sense of insecurity among global investors. History shows that during times of war or crisis, investors sell riskier assets and move towards safer assets, and gold has been established as a 'safe haven' for years.
Additionally, recent inflation data from the US came in lower than expected, leading to anticipation that the US Federal Reserve might cut interest rates in the near future. When interest rates fall, the dollar weakens, and gold strengthens. This is why a surge in gold prices has also been observed globally.
Why Gold is Considered a Safe Investment
Throughout history, whenever markets have become volatile or the threat of major conflict has emerged, gold has served as a safe investment. While it doesn't offer interest income, it provides price stability and asset security. This is why, whether it's a global recession or a crisis like the COVID-19 pandemic, gold has always reached high levels.
In the current scenario, with volatile stock markets, a weakening rupee, and significant fluctuations in crude oil prices, investing in gold is providing investors with satisfaction and security.
Bank and Brokerage Firm Projections
According to analysts, this surge in gold prices could continue. Bank of America believes that international gold prices could reach $4,000 per troy ounce in the next 12 months. Goldman Sachs echoes this sentiment, suggesting that aggressive gold purchases by central banks could drive prices to $3,700 per ounce by the end of 2025 and $4,000 per ounce by mid-2026.
If these projections prove accurate, gold prices in India could exceed ₹125,000 per 10 grams in the next 12 months.
Other Factors Contributing to the Price Surge
- Central Bank Purchases: In recent months, central banks in several countries, including China, Turkey, and India, have purchased significant quantities of gold. These banks are turning to gold to reduce their reliance on the dollar and secure their foreign exchange reserves.
- Weakness in the Dollar Index: Other currencies are strengthening against the US dollar. When the dollar weakens, gold prices typically rise because it becomes cheaper in other currencies.
- Inflationary Fears: Inflation rates in global markets remain uncontrolled. Investors prefer to invest in assets that maintain their value during inflationary periods. Gold becomes an ideal option in this situation.
Strategy for Small Investors
The increase in gold prices attracts small investors, but direct investment is not always beneficial. Experts advise small investors to invest in gold gradually and through diversified means. Gold ETFs, sovereign gold bonds, and digital gold through mutual funds are considered safe and practical options.
Is Buying Gold Now Wise?
According to market analysts, if an investor's plan is long-term, buying gold at current prices wouldn't be wrong. However, investors seeking short-term gains should exercise caution, as prices are temporarily elevated, and the possibility of a sharp decline remains in case of war or continued tension.
Impact on Inflation
The surge in gold prices directly impacts the common man's pocket. Demand for gold increases during occasions like weddings, and if prices remain high, consumers will have to spend more. Furthermore, jewelers will face increased inventory and costs, potentially affecting their profitability.
