Explained! Gold smashes Rs 1.5 lakh mark for first time, ever: 6 reasons why it appears unstoppable

The projection of gold prices surging past the Rs 1.5 lakh mark per 10 grams by 2026 is a significant economic indicator, reflecting a complex interplay of global and domestic factors. For competitive exam aspirants, understanding this phenomenon goes beyond mere price points; it delves into fundamental economic principles, geopolitical dynamics, and their profound implications for India.

Gold has historically been regarded as a 'safe haven' asset, a store of value that tends to perform well during times of economic uncertainty, inflation, or geopolitical instability. Its universal acceptance and intrinsic value make it a preferred asset when traditional financial markets face headwinds. In India, gold holds immense cultural and traditional significance, often considered auspicious for weddings and festivals, and serving as a primary form of savings and investment for millions of households, particularly in rural areas. This deep-rooted affinity for gold ensures strong domestic demand, irrespective of global trends.

The anticipated surge in gold prices is driven by a 'perfect storm' of factors. Firstly, **geopolitical tensions and tariff threats** create an environment of global instability. Ongoing conflicts, such as the Russia-Ukraine war, and trade disputes between major economic powers (e.g., US-China) heighten investor anxiety, prompting a flight to safety. Gold, in such scenarios, becomes an attractive hedge against currency depreciation and market volatility. Secondly, **strong investor demand**—both retail and institutional—reflects a broader sentiment of seeking protection against inflation and economic downturns. With global inflation persisting in many economies and interest rates remaining elevated, investors are diversifying their portfolios to include more gold. Thirdly, **central bank buying** has emerged as a crucial driver. Central banks, particularly in emerging economies, have been consistently increasing their gold reserves to diversify away from the US dollar and enhance the stability of their foreign exchange holdings. This strategic move by sovereign entities injects significant demand into the market. Fourthly, related to central bank actions, **de-dollarisation trends** signify a gradual shift by countries to reduce their reliance on the US dollar for international trade and reserves. This trend, driven by geopolitical considerations and a desire for greater financial autonomy, naturally boosts the appeal and demand for alternative reserve assets like gold. Finally, **domestic rupee weakness** plays a critical role for Indian consumers. Since gold is primarily imported into India and priced in US dollars, a depreciating rupee makes gold more expensive in local currency terms, even if international dollar prices remain stable or rise moderately. This rupee depreciation against the dollar directly contributes to the higher rupee price of gold.

Key stakeholders in this scenario include **Indian households and consumers**, who are the largest private holders of gold globally. Their investment patterns, driven by cultural factors and economic necessity, significantly influence domestic demand. The **Reserve Bank of India (RBI)** is another critical stakeholder, responsible for managing India's foreign exchange reserves (which include gold), maintaining monetary stability, and controlling inflation. The **Government of India** is impacted through its fiscal policy, particularly customs duties on gold imports, and managing the Current Account Deficit (CAD). Globally, **international investors and central banks** are major players whose buying and selling decisions influence global gold prices.

This matters immensely for India. Economically, India is one of the world's largest importers of gold. A rise in global gold prices, coupled with a weaker rupee, significantly **exacerbates India's Current Account Deficit (CAD)**, as more foreign exchange is spent on gold imports. This puts pressure on the rupee and can impact the overall balance of payments. High gold prices can also contribute to **inflationary pressures** within the domestic economy, as gold is a key component of household wealth and a driver of sentiment. For **household savings and investment**, while gold offers protection, a continuous surge might divert savings away from financial instruments, potentially hindering the financialisation of savings, a policy goal for the government. The RBI faces challenges in **monetary policy** as it balances inflation control, currency stability, and managing foreign reserves amid these dynamics.

While no specific constitutional article directly dictates gold prices, several provisions and acts are relevant to the broader economic framework. The **Reserve Bank of India Act, 1934**, empowers the RBI to manage monetary policy, issue currency, and manage foreign exchange reserves, which includes gold. The **Foreign Exchange Management Act (FEMA), 1999**, governs foreign exchange transactions, including gold imports and exports, thereby influencing its availability and pricing. The **Customs Act, 1962**, allows the government to levy import duties on gold, a tool frequently used to manage gold demand and CAD. Furthermore, general economic policies outlined in the Union Budget and Economic Survey often include measures related to gold, such as import duties or schemes like the Sovereign Gold Bond Scheme, aimed at reducing physical gold demand.

Looking ahead, the future implications are multi-faceted. Continued volatility in global markets and geopolitical tensions could sustain high gold prices. For India, this might necessitate further policy interventions, such as adjusting import duties or promoting alternative investment avenues like Sovereign Gold Bonds to curb physical gold demand. The trend of de-dollarisation could accelerate, further bolstering gold's role as a reserve asset. This scenario underscores the need for robust economic management, prudent fiscal policies, and strategic monetary decisions to navigate the challenges and opportunities presented by a surging gold market. It also highlights the intricate connections between global geopolitics, national economic stability, and individual financial decisions.