Reasons behind gold's unprecedented run

There has been quite a volatility regarding gold over the past two and a half years. In the year 2024, gold touched new highs at the international level. Gold prices in the country remained around 74,000 rupees per 10 gm. However, there is currently some softening in prices. But this softening is not so much that people can gather the courage to buy gold. As soon as they think of buying, the rate increases. In such a scenario, everyone has two or three questions in mind. First – why is gold running up so much? Second – will the rates ease in the coming time? And third – can gold go above the current level, meaning, can it become more expensive? Let’s try to answer these questions for you.

There are some important reasons behind the rise in gold prices. The first reason is geopolitical tension. There is geopolitical tension in many parts of the world including the Israel-Palestine conflict, Israel-Iran tension, Russia-Ukraine conflict, China-Taiwan, etc. Gold and silver are considered safe havens. So whenever there is any kind of tension, turmoil or economic crisis at the global level, the demand for gold increases and as a result, the prices rise.

The second reason is that central banks of many countries are buying gold aggressively. According to a report published in a leading business line, one reason for the surge in gold prices is the gold buying done by central banks in the first quarter of calendar year 2024, i.e., January-March. India, China, and Turkey lead in gold buying. Central banks around the world have purchased 290 tonnes of gold during this period.

According to the report, India’s central bank, RBI, purchased 19 tonnes of gold in the first three months of calendar year 2024. Whereas in 2023, 16 tonnes of gold were purchased throughout the year. Meanwhile, China increased its gold reserves by 27 tonnes and Turkey increased by 30 tonnes. India, China, and Turkey together purchased 76 tonnes of gold in just three months.

Gold works as a stable asset for central banks, which help stabilise economies during financial crises. Whenever there is volatility in currency or in the global market, gold can be easily sold. This increases its demand. In fact, when a central bank buys gold, it’s not based on demand and supply, but its purpose is to strengthen its country at any cost. If a country decides to increase its gold reserves, it remains ready to buy gold at any price. When central banks continue to buy gold, prices strengthen even more.

According to Sachin Jain, Regional CEO of the World Gold Council, due to the purchases made by central banks and current geopolitical uncertainties, there is no possibility of a decrease in gold prices in the short term. However, if there is any tension or crisis in the world, gold prices may rise.

According to experts and reports, gold prices have nearly tripled in the last 9 years. Prices started at 24,740 rupees in 2015. Talking about the last 9 years, prices tripled from 8,250 rupees in 2006. Experts believe that if this trend continues, gold could reach 2 lakh rupees per ten grams in the next 7 to 12 years.