Explainer: Gold hits all-time high, reasons why yellow metal is shining bright

Tribune Web Desk

Vibha Sharma

Chandigarh, April 1 

In a country like India, gold is not just an investment or a commodity but a possession with sentimental and emotional attachment passed on from generation to generation as family heirlooms.

Indians buy gold for marriages and ceremonies in the family and occasions like ‘Akshaya Tritiya’ and ‘Dhanteras’ as part of the religious process.

However, it seems the world is in a race to acquire the precious metal, a reason why gold prices touched a record high on Monday.

According to agency reports, domestic gold futures rose to Rs 69,487 per 10 grams, up nearly 10 per cent so far in 2024.

In global markets the spot gold was up 1.2 per cent at $2,258.53 per ounce after hitting an all-time high of $2,262.19 earlier in the session.

What is driving the prices?  

In India, 10 grams of 24 k gold was selling at a whopping Rs 70,800 on Monday.

The precious metal recorded its highest monthly rise in March on the back of anticipated US Federal interest rate-cutting, buying by the central bank, hedge fund bets and geopolitical tensions.

“Traders are pricing in a 69% probability that the Fed would begin cutting rates in June,” according to agency reports. Experts are also predicting a bullish run for silver and copper as well.

Gold—a solid asset

As an asset, gold is solid with features of a possessable commodity, currency as well as safe investment. While the main driving force for the recent increase seems to be the speculation surrounding Fed rate and the upcoming US elections, there seem to be other reasons as well, especially 

Central banks across the world are accumulating gold amid persisting geopolitical tensions, including the Russia-Ukraine conflict, sanctions and Russia’s warnings against US military involvement in Ukraine and Israel-Hamas conflict.

Experts say after acquiring 1081.0 tonnes in 2022, central banks added 1037.40 tonnes in 2023.

“People in India love gold and even those with limited means try to acquire it, even if it is only a few grams. But now central banks across the world are in the race to accumulate more of the precious metal,” say experts.

Main shoppers

Interestingly, the main shoppers include emerging markets like China and India. The Reserve Bank of India (RBI) purchased 8.7 tonnes in January, making it the largest acquisition since July 2022.

According to reports quoting the World Gold Council, RBI’s gold reserves increased to 812.3 tonnes in January, up from 803.58 tonnes in December 2023. Other countries with high gold buying include Singapore, Turkey and Russia. 

The top 10 countries with maximum gold reserves are the United States, Germany, Italy, France, Russia, China, Switzerland, Japan, India and the Netherlands in that order.

Gold versus Fiat

Gold reserves are important for the economic stability of a country.

Gold reserves are limited and precious metal comes with a reliable value that can be traded especially in the times of financial uncertainties, making it a good buy not just for individual households but countries as well. 

Experts say that India is buying more gold as a tool of diversification of portfolio and as a cushion against value changes in the rupee vis-a-vis the US dollar.

There was a time when countries backed the value of their paper money with gold by establishing a fixed exchange rate between the currency and a specific amount of the metal. 

However, in the modern world Fiat money started ruling global trade. Examples of Fiat money include US dollar, euro, British pound and Japanese yen.

“Fiat money is backed by a country’s government rather than a physical commodity or financial instrument like gold. Amid geopolitical tensions and US sanctions, attempts are being made by countries, including China, Russia and India to break the dollar hegemony. It may not happen immediately but accumulation of gold amid geopolitical uncertainty shows that central banks are using it to build the creditworthiness and economic standing of respective countries.

“In Indian homes, gold is always considered a safe and profitable investment to tide over financial hard times. However, world over now the precious metal is being used as a hedge against factors like inflation, currency and volatility,” analysts say.

Experts say small investors should aim to increase their exposure and allocate a percentage of their savings to it whenever possible to tide over uncertain times, wars, pandemic, economic slowdown, etc.

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