Gold price: As global tensions mount, yellow metal rate heads north

Gold price has been rising inexorably and the reasons behind that are not hard to find – geopolitical tensions are mounting. In fact, they literally exploded when Iran launched an attack on Israel in the form of multiple missiles as well as drones. That is seen as a big negative and may become worse if Israel were to retaliate against Iran, as it has promised to do. However, if the retaliation does not happen, it may be back to business as usual. While that is the biggest worry driving up geopolitical tensions, it is not the only one. There is the war in Ukraine as well as a number of elections set to be held in many countries including India. The effect has been seen in the rising trend of oil as well as of gold prices. Notably, gold price is up by 18 percent since mid-February. This also indicates that gold price was increasing well before the Israel-Iran tensions mounted.

“Escalating geopolitical risks significantly bolster gold as hot and cold conflicts, and a record number of elections this year, keep the risk thermometer high. Trade risks associated with geopolitical risks are also gold positive,” MoneyControl quoted international brokerage HSBC as saying.

The thoughts behind gold price rise

Gold is considered a safe haven, a place of refuge when the rest of the assets, including equity, are under pressure. The yellow metal retains its rate better than other assets despite the volatility and uncertainty in the wider world. And that is what leads investors to turn to gold – diversify their risk.

“…while gold prices may fall from what we believe are inflated levels we believe geopolitical risks will sustain gold at higher levels than would otherwise be the case,” HSBC added.

Not just the common man or investors, central banks have been buying gold too and thereby helped boost rates. This has been increasingly seen after the emergence of higher geopolitical risks mentioned above. There are other reasons adding to this trend. “In addition to geopolitical reasons, growing forex reserves tend to lead to greater diversification, with gold a prime candidate in this regard,” explained HSBC. World Gold Council has estimated that central banks accumulated 39 tonnes of gold in January.

The report also highlighted the equity-gold link. It avers that the current higher equity levels will likely make investors turn to the yellow metal due to higher liquidity as well as to hedge against risk.