The gold rally doesn’t seem to be running out of breath. US Fed is anticipated to cut interest rates twice this year. The US government’s borrowing programme will guide response by central banks on buying more gold. Economic uncertainty will increase as more of Trump’s tariff policies are implemented. Downside risk to gold prices is unwinding of unusually large speculative long positions in the futures market. But fundamental forces driving the rally are strong enough to counteract a possible decline in speculative trade.
For India, plateauing of gold imports provides some cushion to its trade deficit that is expected to widen over export uncertainty. Import duties on jewellery have been lowered to revive retail demand for gold. Factors feeding gold’s recent spike are likely to intensify by the time India enters its festival buying season. Squeeze on retail demand and on jewellery exports may need more policy support. RBI will have its gold-buying trajectory decided by the risk of revaluation loss if US treasuries rise, as well as by the strengthening dollar. But its gold reserve plans are not overly aggressive, as the country is not actively seeking to de-dollarise trade.
