Over a span of five months, domestic gold prices surged from ₹60,000 per 10 grams to ₹71,132 per 10 grams, reaching a record high of ₹73,958 on April 12.
The remarkable increase in gold prices reflects the heightened global uncertainty caused by various factors such as trade tensions, financial conflicts among major global powers, record-high interest rates in advanced economies, and ongoing conflicts, particularly in the Middle East.
The Appeal of Gold Amidst Uncertainty
In times of uncertainty, investors often turn to “safe haven” assets, with gold being a traditional choice due to its historical resilience during economic instability, geopolitical crises, and market downturns. Gold’s enduring value and scarcity make it a reliable investment option.
Additionally, the surge in equity market valuations is indirectly fueling demand for gold as a portfolio diversifier, with increased buying observed from institutional investors, retail segments, and central banks globally.
Central Banks’ Gold Acquisition Trends
Institutional investors are acquiring gold in anticipation of potential interest rate cuts by the U.S. Federal Reserve, as gold prices typically rise during periods of falling interest rates when compared to income-paying assets like bonds.
Central banks are actively accumulating significant amounts of gold to diversify their foreign exchange reserves, reducing their dependence on the U.S. dollar. This trend is currently driving gold prices to unprecedented levels.
Shifting away from dollar dependency
Central banks globally are turning to gold to diversify their reserve portfolios, aiming to reduce reliance on the U.S. dollar as the dominant ‘reserve currency’. Incorporating gold alongside other assets helps mitigate risks associated with currency devaluation and geopolitical instability.
Gold offers stability to central banks during financial crises, acting as a safeguard to stabilize economies. Its liquidity and value make it a sought-after asset during currency volatility or market turbulence.
China’s Aggressive Gold Acquisitions
The People’s Bank of China (PBoC) has been on a gold buying spree for 17 consecutive months, diversifying reserves away from the dollar. China’s strategic move reflects efforts to reduce dependency on the dollar amidst concerns over its use in foreign policy leverage.
While China leads in gold mining, it’s increasingly importing larger quantities to bolster its reserves. The country’s gold buying spree is a response to challenges in local property and equity markets, with gold assets gaining traction among investors.
India’s Resumed Gold Buying Momentum
India has seen a resurgence in gold purchases, surpassing its previous year’s total within the first quarter. The Reserve Bank of India (RBI) bought substantial amounts of gold in recent years, reaching an all-time high in gold reserves, showcasing a shift towards gold as a strategic asset.
In the global ranking of gold reserves, the U.S.A. leads, followed by several European countries and the Russian Federation, with India holding a notable position. Central banks worldwide are recognizing the value of gold as a diversification tool and a hedge against economic uncertainties.
