Gold prices surge past ₹85,000 mark for the first time: 5 key factors behind the rally

Gold prices in India have been charting an upward path of late with the changing global dynamics. After the return of Donald Trump as the US President, the concerns over a tariff war have affected stock markets and investors across the globe.

Yellow metal prices soared to a record high on Monday, February 3, as investors turned to safe-haven assets after Trump imposed tariffs on Canada, Mexico, and China. However, prices eased slightly on Tuesday as Trump agreed to temporarily pause tariffs on Canada and Mexico for a month after the two countries pledged to boost border enforcement.

On February 4, the 24K gold price touched an all-time high of ₹85,200 per 10 grams, and the 22K gold increased to ₹78,100 per 10 grams in the domestic market. Gold prices have been on an upward trend in the past few days as prices surpassed the ₹84,500 level on Budget Day (February 1) and maintained the momentum for the next day as well. After retreating marginally, the yellow metal breached the ₹85,000 mark today.

Fear of inflation rise

Though the US government paused the tariff on imports from Mexico and Canada for one month, experts believe the relief might be temporary and the situation may re-emerge in a few weeks.

Experts say 25% tariffs on Canadian and Mexican products and a 10% levy on Chinese goods would increase the cost of several items in the US and fuel inflation. There are also worries that Trump’s pledges to cut taxes and overhaul immigration may erode US finances and further escalate prices.

This would have a major impact on global growth, the fears of which are driving fresh investments in precious metals like gold and silver.

Trade war fear sends Gold to record high

China on Tuesday imposed 15% tariffs on imports of coal and LNG from the US in retaliation for Trump's 10% import duty on Chinese goods. It also announced that there will be 10% tariffs on imports from the US of crude oil, agricultural machinery, large-displacement vehicles, and pick-up trucks.

This has escalated fears of a trade war that will massively disrupt supply chains and slow global growth. Since gold is traditionally seen as a safe-haven asset during economic and geopolitical instability, prices are expected to continue showing upward momentum.

Weak equity markets

Domestic markets have witnessed a sharp sell-off in recent months amid weak quarterly earnings and continued sell-offs by foreign investors (FIIs). Experts believe these sluggish equity market trends might also divert some of investors' money to low-risk assets like precious metals, including gold and silver. Meanwhile, the US dollar index had touched a three-week high of 109.88 in early trade on Tuesday.

Slower pace of rate cuts in US

Stock markets have lost hopes of sooner-than-estimated rate cuts from the US Federal Reserve due to the tariff news.

The central bank is now expected to hold interest rates steady for a longer period despite US President Donald Trump's repeated calls for rate cuts. The Fed had warned after its September meeting that the pace of easing would likely slow due to persistent inflation pressures. This had added another layer of uncertainty to the markets, driving demand for safe-haven assets.

Major announcement in Budget 2025

In the domestic market, Finance Minister Nirmala Sitharaman announced a customs tariff reduction for articles of jewellery and parts from 25% to 20%, effective February 2, 2025. Experts believe reducing jewellery duty may boost domestic demand, particularly in the luxury segment. This could drive gold prices higher.

Shares of major Indian jewellers, such as PN Gadgil Jewellers, Senco Gold, Titan, and RBZ Jewellers, surged up to 9% on Saturday in anticipation of high demand that could further drive gold prices.

Meanwhile, the government is contemplating discontinuing the Sovereign Gold Bond scheme, which was introduced in Budget 2025-16. Though the Union Budget 2025 did not mention anything about SGBs, Finance Minister Nirmala Sitharaman indicated discontinuing the scheme in a post-Budget interaction.

According to media reports, the government is likely to discontinue the SGB scheme due to the high cost of borrowing. “Recent experiences have been that this has been a rather fairly high-cost borrowing for the government. As a result, the government has chosen not to follow that path,” Economic Affairs Secretary Ajay Seth was quoted as saying.

The scheme was approved by the Union Cabinet in September 2015. The last sovereign gold bond was issued in February 2024. SGBs, denominated in grams of gold, are issued by the Reserve Bank of India (RBI). Interest is paid every six months at a pre-defined rate. The current interest rate on SGBs stands at 2.5% per year.