Wars, tariffs, and Fed jitters: gold’s safe-haven status is on fire. Bullion analyst Sanjiv Arole explores whether this is a fleeting peak or the start of a historic climb.
Tigers, or for that matter, most predators take backwards steps, not to flee, but, mainly to spring forward long and far to catch their prey. Gold is currently in a predator mode focussed on scaling fresh highs almost daily. Last month, on 24th February 2025 gold scaled its then all-time high of around $2,959 per ounce at the beginning of that week. However, by the end of the same week gold was down by over 4% around $2,833 per ounce on 28th February. Thereafter, as the chaos in global markets as well as uncertainty in geopolitical situations continued gold surged ahead.
In fact, gold waltzed through the historic $3,000 per ounce mark, scaling it for first time ever. It blitzed its way like hot knife through butter. Not only that, but the yellow metal also scaled yet another all-time high of around $3,057 per ounce (intra-day) on 19th March in anticipation of an interest rate cut by the US Fed. Along the way, gold moved from $2,000 per ounce (in August 2020) to over $3,000 per ounce (a 50% leap) in just under five years. It must be remembered that gold took over 20 years to move from its 1980 peak of $850 per ounce to scale its first $1,000 per ounce and a further 10 years to reach $2,000 per ounce in 2020.
However, with the Fed pressing the pause button on interest rate cuts while at the same time indicating two rate cuts in 2025, gold went off the boil. A limited truce in the Ukraine war and with the trade wars not yet taking off gold slumped even as the Israeli-Hamas truce was shattered with an Israeli air attack killing 400 Palestinians. Gold ended the week at around $3,023-24 per ounce. Is gold backing down from its highs or is it just a tactical retreat only to bounce back and scale fresh highs?
Is gold aiming to reach its pinnacle of inflation-adjusted price, of the 1980 peak of $850 per ounce, at around $3,400 per ounce? Gold bugs, including some institutions are predicting gold to smash through to $4,000 per ounce in 2025 itself. Which path will gold take? Will Trump oblige gold by being instrumental in creating greater uncertainty, disruption and more chaos?
Several factors could determine the path gold could take:
(a) FOMC Meet: In the midst of all the chaos in global markets, the Federal Open Market Committee (FOMC) meet almost went under the radar in mid-March. Gold took advantage of the anticipated interest rate cut and sliced its way through the $3,000 per ounce barrier on 14th March 2025 and then stormed to $3,057 per ounce by 19th March 2025. The Fed decision to pause rate cuts put the brakes on gold’s jailbreak. It has since dropped to around $3,022-23 per ounce by the end of the week in New York. In an aside, both Jerome Powell and Donald Trump do not seem to agree on rate cuts. While Powell seemed satisfied with inflation numbers and decided on no rate cut for now and only two rate cuts later in the year, Trump wanted a rate cut right away and made his views known to all. It would be interesting to see how this confrontation pans out in rest of the year.
(b) War & Peace: The fragile peace between Israel-Hamas was blown sky high when Israeli bombing in Gaza killed 400 Palestinians in a day. The bombings have continued and Israel has threatened ground assault as the hostages held in Gaza have not been freed. As if this was not enough, the US tried to bomb the Houthis in Yemen into oblivion. However, the Houthis vowed revenge and not allow any US ships through the Red Sea. On top of that they rained Tel Aviv with missiles forcing the Israelis to shut down the airport. The US brokered limited truce in the Ukraine war. The Russians launched drone attacks on specific targets in Ukraine, making that limited truce very tenuous indeed. Further, attacks on Kiev on 23rd March before the next peace round in Saudi Arabia makes the peace process hanging by a thread.
(c) Tariff War: Trump’s back & forth on tariffs has made the trade environment across the globe very murky. In March 2025, US has imposed 25% tariff on imports from Canada, Mexico and the EU. It increased import tariff on China from 2.7% to 17.5%. It has also announced reciprocal tariffs from 2nd April 2025 on several other countries including India. All of this is bound to hurt the economies of all the countries targeted as well as the US itself. US in turn could be at the receiving end of retaliatory measures from countries targeted by it. Come 2nd April, India faces reciprocal tariffs from the US. This could seriously jeopardise India’s multi-billion dollar gems & jewellery exports greatly. Already, export units at SEEPZ in Mumbai want an easy access for their export goods into the domestic jewellery markets across the country to counter the loss in trade due to possible very costly and unviable exports.
Overall, gold is being propelled beyond $3,000 per ounce mainly by its status as a safe haven in times of duress, Fed policy on interest rate cuts (at least 2 rate cuts as indicated by the Fed chief), economic uncertainty worldwide, geo-political tensions across the globe as manifested by the failed Israel-Hamas truce, the tenuous limited truce in the Ukraine war and the new US-Houthis conflict threatening to engulf the entire region, the unleashed tariff wars against almost all its friends and foes alike, inflation rearing its head again (though the Fed seems satisfied at the moment on that count). Apart from the above there are also fundamental reasons for gold to move forward.
Gold’s dream-run through the $3,000 per ounce barrier was stalled when the Fed paused interest rate cut for now. Almost immediately, the Dow improved away from its recent low of 40813 to 41985 on the 21st of March. The USD index too improved to 104.09 from a recent low of 103.6 and even Bitcoins-USD index improved to 84836 from a recent low of 78532. However, it must be noted that these indices are still well below the highs of the Trump inauguration day of 20th January 2025. Then the Dow was at 44025, USD index was around 109 and even Bitcoins-USD index was around 102016. It is apparent that Trump’s first couple of months have only benefited gold. Gold was around $2,707 per ounce around the time Trump took over and has jumped by nearly 12% to near $3,027 per ounce (early Asian trading on 24th March).
In spite of all the other factors mentioned in the previous paragraph that aid in gold’s forward march, the bottom-line is that more than anything else, Trump’s policies could determine gold’s trajectory in the remainder of the year.
Meanwhile, India’s gems & jewellery industry could face severe headwinds from the reciprocal tariff backlash from the US. According to GJEPC.org, India’s exports to the US include a diverse range of products: cut & polished diamonds ($5.6 billion), studded gold jewellery ($2.55 billion), plain gold jewellery ($267 million), silver jewellery ($320 million), lab-grown diamonds ($831 million) and more. However, gold jewellery and diamonds, key drivers of India’s exports, stand to suffer the most. India’s tariff on US gold jewellery (20%) far exceed the US’s rates of 5.5-7% on Indian gold jewellery. Likewise, India levies 5% on cut & polished diamonds, while the US applies none. Under the reciprocal plan, the US could raise tariffs on these Indian goods, potentially lowering exports. Then, way back in 2007 when the US withdrew the Generalized System of Preferences benefits, gold jewellery exports fell by around 50% from $2.21 billion to $$1.01 billion within a year, recovering only after 15 years.
Further, the very high gold and silver prices could severely impact both gold and silver jewellery demand in India. With gold around Rs.87,500 per 10 gms and silver over Rs.97,000 per kg, both IBJA rates excluding GST, demand for both the precious metals is likely to be much lower than in the previous year. The World Gold Council (WGC) has already lowered its demand estimates for gold jewellery for the year 2025. However, physical demand for bars and coins in both the precious could see a jump if high prices persist. It is already reported that inflow into gold ETFs has increased in the last couple of months in India. RBI continues to buy gold and this trend could be seen in the remainder even if the gold price increases as well.
Normally, not many years ago, one could see queues outside gold refiners, etc. whenever the gold prices shot up curtailing demand and investors offloaded their gold to make a sizeable profit. In recent times though, investors seem to be anticipating higher gold and silver prices and hanging on to their gold. No photographs of long queues to sell scrap gold and silver seen yet.
On the international front, even though demand for gold jewellery may be curtailed in India as well as China, Western investors could be back buying gold ETFs as the price moves up and central banks seem to have continued to buy gold even in 2025, causing someone to quip, “Central Banks are behaving like Indian housewives in the way they are accumulating gold these day.” Speculators could also push gold further forward along its way. And there is always Trump! Capable of making or breaking gold!!
Finally, a lawyer in the erstwhile state of Bombay named his Bunglow ‘Morarji Krupa’. He said so on TV that he made most of his wealth during the prohibition regime of the then chief minister Morarji Desai. Yes, the same Morarji Desai who later became Prime Minister of India in 1977, but who as Union Finance Minister was instrumental in imposing the obnoxious Gold Control Act in 1962 that was ultimately abolished in 1990 by Madhu Dandavate. Ironically, another politician in a different country has set the ball rolling for gold ever since his inauguration as President of USA. Gold has jumped by over 13% since 20th January 2025.
It is well known that India holds over 25,000 tonnes in private hands. Quite suddenly, the wealth in the hands of individual Indians has increased by around 15% from the beginning of the year – courtesy Donald Trump. Indians could well line up to perform the Aarti to felicitate Trump for the unexpected upturn in their fortunes. A famous devotional song from the 1970s (paraphrased) could now go as: Main to aarti utaru re Trump Maharaj ki!
Disclaimer: The views expressed in this article are those of the author’s and do not necessarily reflect the views of the GJEPC.