Amid ongoing geopolitical tensions in the Middle East and expectations of further interest rate cuts by the US Federal Reserve, international gold prices have surged to record highs so far this year, posting their largest gains in 45 years. Silver has also reached new highs and is experiencing its biggest jump in four years.
This year, international gold prices have risen over 32.5 per cent, marking the highest increase since 1979, while silver has advanced 37.5 per cent. On the domestic front, MCX gold has climbed 23.6 per cent and MCX silver 32.9 per cent — their biggest gains since 2020.
"[Apart from Middle East geopolitical tensions and US Fed interest rate cuts], topping out of Dollar Index, buying of gold by central banks especially in emerging markets, fund inflows and strong consumer demand is driving up the demand for precious metals. While the momentum in gold started early, silver has caught up due to expectation of recovery in the Chinese economy and support from industrial demand which continues to keep pressure on demand-supply deficit," said Siddharth Srivastava, Head-ETF Product & Fund Manager, Mirae Asset Investment Managers (India).
Analysts said the US Fed cut by 50 basis points (bps) in September had a dual impact on precious metals. Lower interest rates made bonds less attractive investments, diverting capital towards bullions. This, combined with the government's reduction in import duty on precious metals, made them more appealing to domestic buyers.
China's significant increase in gold reserves also played a role in driving up prices. China has added 29 tonnes of gold to its reserves in 2024, a 16 per cent increase since last year. This added buying pressure to the market.
Finally, the weakening of the US dollar provided a tailwind for precious metals, as they are typically priced in US dollar. A weaker dollar generally leads to higher prices for commodities, including gold and silver, analysts added.
The Indian markets have become volatile, experiencing a correction following a sustained rise since April 2023 and higher valuations. Since start of October, both benchmark indices — Sensex and Nifty — have declined by over 5 per cent, while the broader BSE MidCap and SmallCap indices have each dropped by more than 6 per cent each.
Aamir Makda, commodity & currency analyst at Choice Broking, said precious metals are anticipated to keep up their upward trend this year. The Federal Reserve's forecast of another rate cut has stimulated anticipation for a price surge in these bullion assets.
As the festive season approaches, physical demand for gold, particularly in the form of jewellery, is expected to rise significantly. This seasonal surge will increase overall demand for precious metals, boosting price appreciation, Makda added.
Srivastava expressed a positive outlook on gold and silver. He expects gold to see modest gains, advising investors to buy on dips or through systematic investment plans (SIPs). Regarding silver, he believes the current rally has further potential, but cautions investors to remain mindful of the metal’s price volatility.
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