Gold is Back in Action- 3 Reasons Why the Surge Might Last

Gold Price Today: For safe-haven investors, optimism remains sky-high as the yellow metal resumed its upward trajectory. Gold prices rose by Rs 200 to Rs 87,900 per 10 grams in Delhi NCR. Trump's trade play will begin this week, as the US President confirmed that all imports from Canada and Mexico will start facing a straight 25% tariff rate. "Tomorrow — tariffs 25% on Canada and 25% on Mexico. And that'll start," Trump told reporters in the Roosevelt Room.

The high tariff rate, as per the President, is primarily meant to push Mexico and Canada to curb fentanyl trafficking and illegal immigration. The prospective trade tensions sent shockwaves across the US equity market as investors estimate more tariffs this month, giving rise to uncertainty in an already blurry outlook. The Dow Jones industrial average plummeted over 600 points or 1.4% to settle at 43,191 level.

The S&P 500 index witnessed an even sharper fall of 1.76% or 104 points to conclude the trading session 5,849 level mark. All this had investors rushing to gold, as evident by the sudden surge after a brief period of profit booking.

"Gold remained positive with a gain of Rs 550 at Rs 84,775 after last week's 1.60% profit booking. The fresh upside comes as global uncertainty persists, with tensions between US and Ukraine leaders over deal negotiations. Ongoing tariff concerns and dollar volatility continue to support gold as a safe-haven asset," said Jateen Trivedi, VP research analyst-commodity and currency, LKP Securities.

Here's why the surge might last-

1. Tariffs, Tariffs & Tariffs

March will witness several tariff calls being implemented. The latest, hitting imports from Canada and Mexico, is already in motion. Additionally, a straight 25% tariff will also be imposed on all steel and aluminum imports starting March 12, that is next week. Next month, tariffs will be imposed on broader sectors, including automobile and pharmaceutical drugs. As per reports, this could come into effect by April 2.

All this is expected to create more uncertainty among investors, pushing them to put their money in safe-haven assets like Gold.

2. Diverse Demand

Interestingly, gold has managed to outperform in contradicting environments. The metal held its ground in both rising and falling US yields, acting as a reliable inflation hedge which concurrently being a safe-haven asset.

“We maintain our multi-year bullish outlook on gold. From a macro perspective, a universal tariff scenario would likely supercharge the broad price effects for precious metals. Boosted economic growth concerns and higher inflation risks could continue to fuel strong investor demand for gold,” said Natasha Kaneva, head of Global Commodities Strategy at J.P. Morgan.

3. Central Bank Play

Central banks, around the world, have increased their gold reserves as global macros remain turbulent.

As per data by the World Gold Council, central bank purchases exceeded 1,000 tonnes for the third consecutive year. The People’s Bank of China (PBoC) announced fresh gold reserve purchases in November, marking a return to buying for the first time since April. The PBoC added 5 tonnes of gold in November and another 10 tonnes in December, JP Morgon said in a report.

"Under a disruptive macro scenario (including increased tariffs and trade tensions, stronger inflation and a US budget deficit expansion) central bank purchases, particularly from China, could be a source of stronger demand in 2025," the global financial institution said.