Gold surpasses ₹1 lakh mark for the first time; here are the factors driving the gold rally

Gold prices crossed the historic ₹1,00,000 mark per 10 grams in India for the first time on Friday, driven by a surge in global demand as investors rushed to safe-haven assets amid escalating geopolitical tensions and persistent buying by central banks.

On the Multi Commodity Exchange of India (MCX), August gold futures soared nearly 2% in early trade to a record high of ₹1,00,403 per 10 grams. The price hovered around ₹1,00,145, reflecting yellow metal’s growing appeal in times of heightened uncertainty and volatility.

In international markets, spot gold rose 1.3% to $3,428.28 per ounce in early Asian trade, while US gold futures climbed 1.4% to $3,449.60—both hitting their highest levels since early May. Gold has gained over 3.5% this week alone, continuing the strong upward trend that has prevailed since early 2022.

Geopolitical flashpoints trigger gold rush

The latest rally in gold prices has been triggered by rising geopolitical tensions in the Middle East. A sharp escalation occurred overnight when Israel launched airstrikes targeting Iran's nuclear facilities, escalating fears of a broader regional conflict. The Israeli government, led by Prime Minister Benjamin Netanyahu, confirmed that the operation was aimed at neutralising elements of Iran's nuclear programme.

This escalation comes after Hamas carried out a large-scale assault on Israel from Gaza in 2023, prompting a prolonged military response. These conflicts, on top of an already fragile global geopolitical environment, have added fuel to gold’s safe-haven status.

“Every time geopolitical stress intensifies—whether it was Russia’s invasion of Ukraine, the Gaza-Israel conflict, or the current Iran episode—gold proves its mettle as a trusted hedge against chaos,” said Abhishek Jain, a Delhi-based gold trader.

Concerns over US trade policy under President Donald Trump have further supported gold's rally. Trump’s threat to impose tariffs in a bid to force trade concessions, reignited fears of a global trade war. Although US Treasury Secretary Scott Bessent hinted at a possible extension of the 90-day tariff pause, market participants remain wary.

Gold has surged nearly 92% in international markets since February 2022, when the Russia-Ukraine war began. On Friday, it touched $3,445 per ounce, just shy of its all-time high of $3,500.

Central bank buying boosts gold prices

A major structural driver of gold’s rise has been sustained demand from central banks across the globe. Since the onset of the COVID-19 pandemic, central banks—especially those in emerging markets—have aggressively increased their gold reserves to hedge against inflation, currency depreciation and geopolitical risks.

The Reserve Bank of India (RBI) has been among the most consistent buyers. Having started its accumulation strategy in December 2017, the RBI stepped up gold purchases after the outbreak of the Russia-Ukraine war. A research note from Punjab National Bank highlighted that the RBI is now among the leading central bank gold buyers globally.

“Central bank purchases have played a silent yet significant role in tightening global supply and supporting prices. This isn’t short-term opportunism; it’s a long-term strategic pivot,” Jain added.

The World Gold Council has also noted that central bank demand has been one of the key pillars propping up gold prices globally, particularly during periods of economic stress and currency fluctuations.

Gold's safe-haven appeal was reinforced during the 2022–23 inflation surge. In the US, inflation peaked at 9.1% in June 2022—its highest level in over four decades. To contain runaway prices, the US Federal Reserve executed 11 successive rate hikes starting March 2022, taking the federal funds rate from near-zero to 5.25%–5.50% by July 2023.

Rising interest rates typically dampen gold’s appeal because they increase the opportunity cost of holding non-yielding assets. However, persistent macroeconomic uncertainty, coupled with volatile currency markets and fear of stagflation, has kept demand for the yellow metal intact, analysts said.

“In normal times, rate hikes would cool gold demand, but these are not normal times,” Jain said. “What we’re seeing is a structural repositioning of gold in the investment landscape—as a strategic hedge, not just a temporary bet,” he added.

Looking forward, analysts expect gold prices to remain elevated as geopolitical tensions remain unresolved and central banks continue their diversification efforts. Uncertainty over Trump’s threats of trade wars and unpredictable diplomacy could further rattle markets, analysts said.

“Gold has transitioned from being merely a hedge to becoming a strategic asset class,” said Jain. He added that “unless there’s a dramatic cooling-off in global tensions, the current rally is far from over.”