Reasons behind the recent spike in gold prices in India

Prelims – Current events of national and international importance.

Mains (GS II) – Economic Development | Issues relating to planning, mobilization, of resources, growth.

Why in News?

In the domestic market, gold breached the psychological level of Rs 1 lakh per 10 grams, while gold prices hit a fresh record high of 3,500 dollars per ounce in the international market recently.

• Tariffs imposed by U.S. - Experts attribute the global economic uncertainty caused by the tariffs imposed by US as the primary reason behind the recent spike in gold prices.
• US investors are also importing large quantities of gold from the international markets China, London, and other countries like to hedge against a potentially higher tariff regime.
• Fluctuations in Major currencies - Recent fluctuations in the values of major currencies, including the US dollar and the euro, have prompted businesses to invest in gold to hedge their currency assets.
• Surge in demand - The ongoing global tariff and trade war has led to a surge in demand for gold by investors, fund managers, and central banks alike.
• There is also a surge in demand for gold through Gold Exchange-Traded Funds, or ETFs, as these funds are attracting higher investments.
• Domestic reason – Gold prices have also risen in the domestic market due to the ongoing marriage season, which typically leads to a spurt in gold demand.

India is the 2^nd-largest gold market in the world, after China. According to a World Gold Council report, the value of total gold demand in India increased by 31% in 2024, compared to 2023.

Reference

Hindu Business line | Uncertainty is driving gold prices