With every investment, one hopes to strike gold. But with the unpredictable nature of geopolitics, economic shifts, and investor sentiment, the reality is much more complex. However, one asset has consistently stood the test of time – gold. Now, with silver and gold prices skyrocketing to unprecedented levels, what do the long-term consequences have in store for us?
Factors impacting silver and gold prices
As of March 19th, gold prices now in India for 24k and 99.9% purity are at Rs. 91,960 per 10 grams, whereas silver rates have surged to Rs. 1,07,200 per kg. A confluence of global and local factors has influenced gold prices and silver rates.
1. Geopolitical tensions and economic uncertainties: Global instability is the primary catalyst for gold’s rally. Whether it is the Ukraine-Russia war, the rifts in West Asia, or the recent U.S. strikes on Yemen’s Houthis, all these escalations have fanned this fire, bumping up bullion prices.
2. Demand from global central banks: Central banks are aggressively increasing their gold reserves, especially after the seizure of Russia’s central bank assets following the invasion of Ukraine. However, gold is a preferred asset since it is independent of economic or political sanctions. According to the World Gold Council, central banks purchased over 1,000 metric tonnes of gold in 2024 alone, with India, China, Poland, and Kazakhstan leading the charge. This marks a strategic move to shift away from the U.S. dollar amidst fears of inflation and currency devaluation.
3. Weakened U.S. dollar: The dollar index has declined, and these currency fluctuations increase the attractiveness of gold and silver investments for foreign investors.
4. Reciprocal tariffs: The U.S. has an open economy, yet its trading partners impose a high tariff on their goods. This has prompted the U.S. administration to dissolve this trade deficit through reciprocal tariffs – think of it as a tit-for-tat in trade. U.S. President Donald Trump’s tariffs on Canada and Mexico could spur a global trade war, stoking inflation and slowing economic growth. Higher inflation erodes the purchasing power of fiat currencies, but the yellow metal remains a means of preserving capital.
5. RBI policies and their impact: When the Reserve Bank Of India (RBI) increase interest rates, other modes of investments become more attractive than gold. Conversely, a rate cut increases liquidity, driving up gold prices. Further, a reduced repo rate can fuel inflation and weaken the rupee, making the yellow metal a preferred hedge.
Will silver cost more than gold in the future?
While the prices of yellow and white metals are soaring, there can be an unprecedented spike in the cost of silver in the near future. Silver is used in electronics, new technologies, and many industrial applications. Due to this high demand and the increasing gap between industrial consumption and mining output, silver reserves are depleting fast. Though risk-reward is better in gold, you can yield higher gains in silver with some volatility. This surplus demand has led to an exponential rise in silver prices, which may even exceed gold’s value.
Why should you consider investing in gold?
The demand for gold – the panic asset of choice – further increased after the pandemic. Here’s why you should consider including gold in your portfolio:
1. As a long-standing symbol of prosperity and good fortune, gold’s ability to maintain its value also acts as a hedge against inflation.
2. Gold has been the safest investment haven since time immemorial – a precious metal that has only appreciated over time.
3. You can include gold as one of the assets to diversify your investment portfolio and reduce overall risk. The key to diversification is ensuring your investments are not correlated. Historically, gold has had a low or negative correlation with other major asset classes like stocks and bonds. So, gold may hold a stable value when other assets are underperforming.
4. Geopolitical events can disrupt a commodity’s supply chain. A case in point is Russia, one of the largest producers of gold. Many Western countries placed sanctions on Russia following Ukraine’s invasion. This economic turmoil could have disrupted gold’s supply chain. But gold’s liquid and high value-to-weight ratio make it comparatively easy to transport and trade.
5. Gold-backed exchange-traded funds (ETFs) are highly liquid, easy to buy and sell, and do not require any storage or security costs.
6. Investing in gold mining companies can also help you leverage potential gains. These stocks can outperform gold prices during bull markets or even offer dividends in some cases.
A highly liquid asset globally, it’s no wonder investors seek refuge in gold during market fluctuations. Even if gold prices are at an all-time high, considering its versatility in the face of tumultuous situations, this is an investment well worth considering.
*Disclaimer: Mutual fund investments are subject to market risks, read all scheme-related documents carefully. *
