Gold draws major attention, especially during periods of uncertainty. Gold is often considered a safe-haven asset, which makes it an important investment to watch when geopolitical tensions rise. Like, during the US-Iran war, investors once again turned their attention to gold as concerns around the global economy and financial markets increased.
However, the conflict also affected gold prices. As investors reacted to the changing market conditions and sought safer investment options, the demand for gold initially increased. But changes in oil prices, the US dollar, interest rates and investor sentiment also influenced gold prices during the period.
How did the US-Iran War affect gold prices?
The uncertainty created by the US-Iran war affected gold prices as investors reacted to the possible impact of the conflict on markets and the global economy. As concerns increased, rising buying interest supported higher gold prices. The rise was also linked to a few developments during the conflict:
- The conflict raised concerns about possible disruption to oil supplies from the region, which pushed oil prices higher. Higher oil prices also increased worries about inflation and the wider economy, adding to demand for gold.
- Investors also became concerned about the possible impact of the conflict on global economic growth and financial markets, which added to the demand for gold. As investors looked for greater stability during the period, gold largely remained a safer investment option.
Why did gold prices fall later?
The rise in gold prices, however, did not continue at the same pace. After the prices moved higher, some investors started selling their holdings to book profits. This reduced buying pressure and put some pressure on gold prices.
- Investors who had bought gold when prices were lower could sell after the rise and lock in their gains. This increased selling in the market.
- As investors assessed the impact of higher oil prices and inflation, their expectations about interest rates also changed. Higher interest rates can make gold less attractive because gold does not pay interest.
- Changes in the value of the US dollar also affected gold prices. When the dollar became stronger, demand for gold from buyers using other currencies could come under pressure.
- As investors received more information about the conflict and its impact, their view of the situation also changed. This affected how much gold they wanted to hold and contributed to changes in its price.
What happened to gold prices in India?
The impact of the US-Iran conflict was also visible in gold price in India. While international gold prices moved sharply during the period, domestic prices remained relatively higher. The World Gold Council said that the weaker rupee and the increase in gold import duty were important reasons for this difference.
A weaker rupee
Gold is imported into India and is priced internationally in US dollars. When the rupee loses value against the dollar, Indian buyers have to pay more for the same quantity of gold, which keeps domestic gold prices higher even when international prices are lower.
Higher import duty
In May, India raised the import duty on gold from 6% to 15%. This led to a higher landed cost of imported gold and pushed the domestic price higher.
Demand and supply
Higher prices also made buyers more cautious. At the same time, the market had additional supply from old-gold exchanges and earlier imports. This kept domestic prices from rising as much as the increase in import duty.
Conclusion
The US-Iran war had a clear impact on the gold market, but gold prices were influenced by several factors during the period. Changes in oil prices, the US dollar, interest rates and investor sentiment affected global gold prices, while the weaker rupee, higher import duty and local demand also influenced gold prices in India.
