Gold Prices Hit Record High of Rs 78,900: What’s Driving the Rally?
Gold prices have skyrocketed to a historic Rs 78,900 per 10 grams. Discover what's driving this unprecedented rally and explore the factors that are impacting gold's market dynamics.
Gold prices have soared to an all-time high, touching Rs 78,900 per 10 grams in New Delhi. Just a year back, gold was significantly cheaper at Rs 58,000.
So, what's behind this “golden” surge? A blend of strong local demand and widespread market uncertainties is driving this precious metal to new heights. As the equity markets falter, an increasing number of investors are flocking to gold—a historically reliable safe haven—thereby boosting its demand and price.
Let's explore the five main drivers behind this significant uptick.
- Geopolitical Drama and the US Presidential Race
Geopolitical tensions in the Middle East and the approaching US Presidential elections are other catalysts stirring the gold pot. It's well-known that gold thrives in uncertain times, and 2024 is proving no exception. The allure of gold grows as it is seen as a safer bet during volatile periods.
- Central Banks' Growing Appetite for Gold
Central banks are on a gold-buying spree, having lapped up over 1,037 tonnes in 2023 and more than 480 tonnes in just the first half of 2024. Their bulk buying is rooted in fears of potential currency crisis and inflation, solidifying gold’s role as a strategic asset.
- Russia’s Role in Central Bank Gold Buying
The spike in central banks' gold buying also ties back to sanctions on Russia post its Ukraine invasion. With the US freezing Russian reserve assets and restricting trades, other nations are actively increasing their gold reserves as a strategy for diversification and risk management as a safeguard against similar financial threats.
- Relationship Between Gold and the US Dollar
Understanding gold's pricing also involves looking at its relationship with the US dollar. Gold is globally traded in US dollars, so when the dollar dips, gold becomes more affordable for those holding other currencies, which boosts its demand. Lately, the dollar's dip has indeed been a boon for gold prices.
- Interest Rates and Gold's Appeal
The role of the US Federal Reserve is crucial too. After a phase of aggressive rate hikes in 2022, the Fed hit the brakes in 2023, even cutting rates recently for the first time in four years. Lower interest rates reduce bond yields, making bonds less attractive to investors, which in turn boosts the appeal of gold.
Will the Gold Rush Continue?
Predicting the future trajectory of gold prices is tricky, with central bank activities, inflation trends, and economic shifts all playing into the forecast. However, the broader trend suggests that, while short-term fluctuations may occur, gold remains an attractive asset for diversification and inflation protection through 2024 and beyond.
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