Gold Rally: Causes, Risks and Impact on India
Why in the news
Gold kept rising as investors sought safety amid US trade policy uncertainty.
Drivers
| Driver | Effect |
|---|---|
| Tariff worries | Shift away from dollar exposure |
| Central bank buying | Reserve stabilisation, mainly in Asia |
| Market volatility, inflation expectations | Safe-asset and hedge demand |
| US Fed rate cuts | Cheaper to hold non-yielding gold |
Risks
- Retail demand falls on costly gold, a stronger dollar and the off-season.
- Unwinding of big speculative futures positions could trigger a correction, though fundamentals are strong.
Impact on India
- Flat gold import volumes give temporary relief to the trade deficit.
- Jewellery demand is squeezed; import duties on jewellery were cut.
- RBI is cautious due to revaluation losses if US Treasury yields rise, and India is not aggressively de-dollarising.
Exam angle
- Gold: safe haven and inflation hedge; key risk is speculative unwinding.