Gold scales yet another peak, hits ₹1,16,850 per 10 grams; here is what is driving the yellow metal higher

Gold has been outperforming all the major asset classes for quite some time now. The price of the yellow metal surged by 1.21% on the MCX to hit a record high of ₹1,16,850 per 10 grams on Tuesday, September 30. The price of gold futures in international markets, for delivery in December, surged by 1.14% to hit an all-time high of $3,899.15.

Safe-haven demand amid rising geopolitical tensions across the world, uncertainty around tariffs in the United States and continuous buying by central banks are some of the primary reasons behind the surge in gold prices, analysts say.

According to the National Stock Exchange’s latest report, the spot gold price is up 37% in the past 12 months and 31% year-to-date.

US political deadlock and shutdown fears

Gold surged to new highs after reports suggested that the US government is heading towards a shutdown as US President Donald Trump and his Democratic opponents appeared to make little progress at a White House meeting aimed at heading off a government shutdown that could disrupt a wide range of services as soon as Wednesday, news agency Reuters reported.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund (ETF), was indicative of the bullish sentiment for gold, as it said its holdings rose 0.60% to 1,011.73 metric tonnes on Monday, to their highest since July 2022.

Investors now await US data on job openings, private payrolls, the ISM manufacturing PMI and the non-farm payrolls report on Friday for further clues on the economy's health.

Geopolitical tensions fuel safe-haven rush

From conflicts between Russia and Ukraine and tensions between Israel and Hamas to heightened trade frictions involving the United States, geopolitical risks have created an uncertain investment climate. Gold, traditionally seen as a hedge against political turmoil, has benefited immensely. For Indian investors — who have always valued gold as a protective asset — these tensions have translated into record demand despite elevated prices, analysts noted.

Central banks continue to stockpile gold

One of the strongest drivers of this rally has been consistent central bank purchases. Countries across Asia, the Middle East and even Europe are adding to their gold reserves as a shield against currency volatility and dollar weakness. For India, where the Reserve Bank of India (RBI) too has been steadily increasing its gold holdings, this trend reinforces gold’s long-term importance in managing external risks.

According to the World Gold Council, central banks added a net 20 tonnes to global gold reserves in May, an uptick from the previous month, though the overall pace has moderated slightly.

Central banks have accumulated over 1,000 tonnes of gold in each of the last three years, up significantly from the 400-500 tonne average over the preceding decade. This marked acceleration in the pace of accumulation has occurred against a backdrop of geopolitical and economic uncertainty, which has clouded the outlook for reserve managers and investors alike, the World Gold Council said in its Central Bank Gold Reserves Survey 2025.

Rupee depreciation and festive demand

The recent weakness in the Indian rupee has made imported gold more expensive, adding to the upward momentum in local prices. At the same time, India is entering the peak festive and wedding season, traditionally the strongest period for gold consumption.

With Dussehra and Diwali around the corner, retail demand, though price-sensitive, continues to underpin the domestic gold market. Jewellers are already reporting strong advance bookings despite record levels.

"Demand for heritage-inspired and handcrafted pieces is picking up, particularly among those markets emphasising artisanal work. Despite the skyrocketing prices, the cultural and emotional value of the gold metal remains nearly equal. We are quite confident that with a proper design and value proposition, the demand should hold through this festive season and beyond. We are making adjustments to our strategies to hold on to both domestic and foreign customers," said Colin Shah, MD, Kama Jewellery.

Strong ETF inflows

Globally, investors are parking funds into gold-backed exchange-traded funds (ETFs). The SPDR Gold Trust, the world’s largest gold ETF, saw its holdings climb 0.60% to 1,011.73 metric tonnes, the highest since mid-2022. At the same time, the prospect of prolonged low interest rates in the US and other developed economies makes non-yielding assets like gold comparatively more attractive, analysts added.