Gold prices have surged in India, which experts believe is driven by escalating trade tensions between the US and other countries, including India. This comes particularly after President Donald Trump’s administration imposed a 50 per cent tariff on Indian goods. Spot gold prices globally hit $3,385.07 per ounce, while in India, 24-karat gold reached about Rs 1,03,610.00 per 10 grams, crossing the Rs 1 lakh mark. Investors are flocking to gold as a safe haven due to its historical stability during economic and geopolitical uncertainty, further amplified by a weakening Indian rupee and fears of retaliatory tariffs.
Gold’s reputation as a “crisis commodity” strengthens during trade wars, currency depreciation, and market volatility. Gold acts as a protection against inflation, which is the increase in the prices of goods and services, and against the devaluation of the Indian rupee, meaning the loss of its value compared to other currencies. Both of these are important concerns for people in India, making gold a valuable asset for financial security.
India’s major concern is regarding the protection against inflation and the decline of the Indian rupee. Gold provides this protection, whereas stocks and bonds do not. Central banks, including the Reserve Bank of India (RBI), have increased their gold reserves to 841 tonnes, or 10% of total reserves, showing confidence in gold as a secure, non-defaultable asset. Cultural significance, especially during festivals like Diwali, further drives demand, with India importing more than 800 tonnes of gold annually.
While trade tensions act as the immediate reason for gold prices to rise, underlying economic and monetary conditions, such as interest rates and money supply, create a supportive environment that further encourages gold appreciation. Together, these factors help drive the increase in gold’s value.
Trump Tariff
US President Donald Trump announced an additional 25% tariff on Indian goods earlier this month, which comes into effect from August 27, bringing the total tariff on Indian imports to 50%. India has described these tariffs as “unfair, unjustified, and unreasonable.” A draft notice regarding the implementation was issued by the US Department of Homeland Security. The tariffs are intended to indirectly pressure Russian President Vladimir Putin to end the war in Ukraine by curbing Russia’s oil trade, a major source of revenue, in hopes that economic pressure will influence Putin’s decisions. Questions remain about whether further notices or updates will be issued before the tariffs are fully enforced.
