Gold is a symbol of wealth and prosperity, and its value has held up through various economic fluctuations. The price of the yellow metal soared in response to the war between Israel and Palestine. Israel launched air strikes on Gaza last Saturday, 7 October.
On Friday (13 October), the yellow metal registered an intra-day rise of ₹1497 per 10 grams on the Multi Commodity Exchange (MCX). Gold futures contract for December expiry on MCX closed 2.58% higher at ₹59,415 per 10 gm on Friday.
The rally in gold was also witnessed during the Russia-Ukraine war. The Russia-Ukraine war started on 24 February 2022. On 7 March 2022, Indian gold prices were quoted at around ₹1,000 per 10 grams. The 22-carat gold prices were quoted at ₹49,400/10 grams and the 24-carat gold prices were quoted at ₹53,890/10 grams.
The big question: Will gold’s rally continue, and for how long? And will the Israel-Hamas war give gold a further boost?
Gold benefits from economic distress as investors shy away from risky assets
“Many people, companies and even governments include gold in their portfolios as a hedge against the doomsday scenario. It works like an insurance policy. The ongoing Ukraine-Russia and Israeli-Palestinian conflicts can disrupt long-term geopolitical equations, global supply chains and confidence in financial instruments. To minimise such risks, investors are increasing their allocation to the yellow metal. Another important aspect is that investors prefer physical gold to any government-backed gold securities in doomsday scenarios. This is because sovereign-backed gold is just an IOU from the government,” says Anshul Gupta, co-founder and chief investment officer at Wint Wealth.
Geopolitical conflict and its impact on gold
After a strong rally in 2021 and 2022. Gold has underperformed so far this year. “The strong rally in equities and attractive bond yields have also weighed on gold as investors move away from gold in favour of other assets,” said Alekh Yadav, Head of Investment Products, Sanctum Wealth.
However, with the Israeli-Palestinian issue and rising geopolitical risks, we believe it may be prudent to reduce the overweight in gold. Gold has generally acted as a good hedge against geopolitical risks and equity volatility, he added.
Gold is often seen as a safe-haven asset. Whеn financial markets arе unclеr and risky, invеstors prеfеr to rush to safе-havеn assеts like gold to prеsеrvе thеir capital.
Wars and gеopolitical conflicts can cause еconomic insеcеrty, which can harm financial markets. In such cases, investors turn to gold for stability as it is less affected by economic downturns and currency depreciation,” said Amit Gupta, MD, SAG Infotech.
Gold investment has gained significant traction as a reliable choice for enhancing portfolio diversification and maintaining financial stability.
One of the main reasons investors turn to gold is its role as a hedge against inflation and economic uncertainty. “Inflation erodes the purchasing power of traditional currencies, making fixed-income investments less attractive. However, gold tends to hold its value during periods of inflation, preserving investors’ wealth. In addition, during times of economic crisis, gold often experiences increased demand as a safe haven asset,” said Mahendra Luniya, Chairman, of Vighnaharta Gold Ltd.
Gold: Reasons for price fluctuations
These price fluctuations are influenced by various factors such as global demand for gold, currency values between nations and interest rates, among others.
