Yellow fever: Is it time to go for gold as stocks take a beating?

Gold has been witnessing quite a high now, with the yellow metal even setting a new high in February of over $2,950 (Rs 2.52 lakh) an ounce.

This gold run has helped see the precious metal jump from Rs 25,000 to Rs 84,300 in just over a decade. This has also led many to ask if prices will cross Rs 1 lakh in India this year.

Notably, the gold rush comes at a time when India’s stock markets are tumbling - the Nifty 50 index opened today (March 4) at 22,011.05, marking a decline of 108.25 points, while the BSE Sensex started the session at 72,817.34, down by 268.60 points.

We take a closer look at gold’s performance and try to understand the reasons for its surge.

India’s gold run

On Tuesday, March 4, gold prices extended their gains with MCX gold opening higher at Rs 85,399 per 10 grammes and reaching an intraday high of Rs 85,518. Meanwhile, spot gold hovered near $2,891 per ounce, following a 1.2 per cent jump on Monday.

This comes after gold saw an all-time high in February — in international markets, spot gold traded at $2,950.39 per ounce while in India, 24-carat gold rose to Rs 87,880 per 10 grammes, while 22K gold climbed to Rs 80,560 per 10 grammes, according to Upstox data.

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Experts also note that gold prices have seen a rapid rise in the past decade. The yellow metal first hit the Rs 25,000 mark in August 2011, followed by the Rs 50,000 mark was surpassed in July 2020. This shows that it took 108 months for the prices to move from Rs 25,000 to Rs 50,000 but only took 48 months to reach the Rs 75,000 milestone. In September 2024, the price of gold hit Rs 75,000.

‘An asset with ascending importance’

Even Chief Economic Advisor V Anantha Nageswaran said that gold will continue to hold value both as a store of wealth and an essential asset for diversification. On Monday (March 3), he said that gold will remain relevant not only as a store of value, as an ornament for cultural and religious purposes, but also as an important portfolio diversification mechanism “until such a time the world is able to arrive at an international monetary system from the current international monetary non-system”.

“Gold will remain relevant not only as a store of value but also as an ornament for cultural and religious purposes,” Nageswaran said, “It will also serve as a crucial mechanism for portfolio diversification until the world transitions to a more structured international monetary system.”

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He further added that “given that the fear of inflation is still there and the world is witnessing the after effects and the consequences of policy discretion that commenced in 1973, gold’s importance will continue to remain very salient and high.”

His comments highlight the continuing importance of gold in protecting wealth amid economic instability.

Factors driving gold surge

Gold’s rally can be attributed to several reasons. Firstly, gold is seen as a safe-haven investment. For those who don’t know, a safe-haven investment is one that can provide stability and security during times of economic uncertainty. And the yellow metal has always been a go-to asset during periods of economic and geopolitical turmoil.

On Monday (March 3), US President Donald Trump announced that the US would go ahead with its previously proposed tariffs on Mexico and Canadian imports. Moreover, tariffs on Chinese goods would double to 20 per cent, escalating trade tensions. These tariff measures, according to experts, will most likely drive inflation, boosting gold’s appeal.

Colin Shah, MD, Kama Jewellery, told CNBCTV-18 that gold would remain strong due to heightened volatility and weak US economic data. “Gold prices are expected to stay afloat amid global uncertainties. The trajectory of the US dollar index (DXY) and USD will be key. While near-term profit booking may occur, mid-to-long-term bullish momentum is likely. We anticipate gold to test $3,000 per ounce in the mid-term,” he said.

The ongoing Russia-Ukraine war has also contributed to the gold run, with many investors looking at the yellow metal as a more favourable investment. As Herobullion.com reports, gold performs well during conflict because it is seen as an intrinsically valuable safe-haven asset. Stocks and bonds often tank in value during wartimes, because investors are cautious about putting their money into traditional assets when conflict threatens the infrastructures supporting these assets. Gold doesn’t have this problem – the yellowish metal has intrinsic value, and demand for gold only increases amid uncertainty and economic recession. –

Another reason why gold has become such a sought-after investment is owing to central banks around the world increased their gold reserves. As per data by the World Gold Council, central bank purchases exceeded 1,000 tonnes for the third consecutive year. For instance, India’s Reserve Bank of India (RBI) added 72.6 tonnes to its stock of gold in 2024. As per an Economic Times report, the 2024 gold purchase was the highest since 2021 and the second highest in any calendar year since it started buying gold in 2017.

With inputs from agencies