Gold zooms 15% year-to-date (YTD); experts list 10 factors

Gold prices in the aftermath of the Iran-Israel crisis have skyrocketed to new highs. In the previous session, the yellow metal closed higher by 0.11 per cent or Rs 77 to Rs 71,920 per 10 gm, after having logged new peak of Rs 73,958 per 10 gm.

In early trade today, the Gold June contract on the MCX was up 0.24 per cent or Rs 169 to Rs 72,012 per 10 gm.

In the international markets, gold prices surged on Monday given the risk-off sentiment after Iran’s retaliatory attack on Israel stoked fears of a wider conflict. Amid gold's increasing appeal as a safe haven, gold rose to $2356.39 per ounce, a rise of 0.51 per cent, extending last week’s gains of 1.6 per cent.

Meanwhile, the dollar also continued to trend higher and hit a new 34-year high amid expectations that sticky inflation in the US will keep rates higher for longer.

Gold prices on the MCX from the start of 2024 have scaled Rs 9,932 per 10 gm or over 15 per cent, giving  a decent run-up to unprecedented levels.

Here are the reasons for the record-breaking gains in the precious yellow metal:

Geopolitical Tension:

After the Ukraine-Russia, the recent Israel-Iran crisis has give gold a new life and boosted its safe haven appeal. As per a Reuters report, Iran launched the attack over a suspected Israeli strike on its embassy compound in Syria on April 1 that killed top Revolutionary Guards commanders and followed months of clashes between Israel and Iran's regional allies, triggered by the war in Gaza.

Global economic slowdown:

Even though economies worldwide are recovering from the corona-led crisis, a Reuters poll covering 48 economies showed that economists forecast global growth at a mere 2.6 per cent in 2024. 

Central banks increasing their gold reserves:

Central banks have been recently reported to up their gold reserves for a couple of reasons including hedging geopolitical risks etc. As per the World Gold Council (WGC), the central banks have been aggressively accumulating their gold reserves and added 39 tonnes to their kitty in January alone.

Inflationary risk:

As in the US inflation is still on the higher side, there remains a view that inflationary pressure shall prevail and in light of it, gold’s charm as an inflationary hedge will only grow.

Federal Reserve rate cut expectations:

Even though the recent inflation figures came in hotter than expected and the expectation around the rate cut in June have receded, the markets factor in rate cut going ahead in view of the improving macros. And rate cuts are positive for gold as they diminish the appeal of other interest-rate carrying fixed income instruments.

Physical gold buyers:

In addition to the investment in gold in financial form, experts maintain that there is no dearth of buyers in physical gold and they have been constantly increasing their holding in a bid to protect their wealth amid global economic slowdown and geo-political rifts.

ETF demand:

Gold ETFs are perceived as an important source of gold demand, with institutional and individual investors using them as part of well-diversified investment strategies, noted WGC report.

Gold mining production has not changed significantly since 2016:

There is a view that after all the easy gold has been mined, miners need to dig deeper in order to have access to quality gold reserves.

De-dollarisation:

Experts also maintain that as economies like China are increasing their gold reserves in order to reduce their exposure to dollar, gold has been scaling new peaks.

Belief that pension funds may initiate buying gold: 

Gold as per reports is under-owned by pension funds and experts believe that going ahead they can up their holdings given the dual benefit they offer of liquidity and stability.