Why Are Gold Prices Rising? Is the India-Pakistan Tension a Factor? Former Finance Secretary Weighs In

Gold prices have surged significantly in recent months, drawing widespread attention from investors, policymakers, and everyday citizens alike. With domestic rates climbing to historic highs, many are wondering what’s behind this rally. Some even speculate whether rising geopolitical tensions—especially between India and Pakistan—are influencing the trend.

In an exclusive conversation, former Finance Secretary Subhash Chandra Garg shared his perspective on what’s fueling the gold price boom and when we might expect a turnaround.

Gold Hits New Highs: What’s Happening?

Recently, the price of gold in India crossed ₹72,000 per 10 grams, marking an unprecedented high. Globally too, prices have soared above $2,300 per ounce. These increases aren’t random; they reflect a combination of macroeconomic shifts, market anxiety, and changing strategies among major financial institutions.

Key Drivers Behind the Surge

According to Garg, several critical factors are influencing the ongoing gold rally. These include increased institutional demand, global economic unease, currency fluctuations, and concerns over geopolitical stability.

1. Central Banks Accumulating Gold

One of the major forces behind rising prices is large-scale gold buying by central banks across the world. Countries such as China, Russia, India, and Turkey have steadily added gold to their reserves, aiming to reduce dependency on the US dollar and safeguard against global economic uncertainty.

“Central banks are diversifying their reserves, moving away from dollar-based assets, and choosing gold for its long-term security. This is placing upward pressure on prices,” Garg explained.

2. Uncertainty in the Global Economy

Stubborn inflation, slower-than-expected growth in advanced economies, and fears of a potential global slowdown have made investors cautious. In such times, gold acts as a traditional hedge—preserving wealth when other assets lose value. This shift in investor sentiment has amplified demand for the yellow metal.

3. Dollar Weakness and Interest Rate Expectations

Gold’s value often moves inversely to the US dollar. When the dollar weakens or expectations grow that interest rates will fall, gold becomes more appealing to global investors. With the US Federal Reserve indicating potential rate cuts later this year, many see gold as a more attractive store of value.

4. Geopolitical Risks Adding Fuel

Although not the primary cause, political tensions and regional instability contribute to a heightened sense of caution in financial markets. Conflicts such as the Russia-Ukraine war, the situation in the Middle East, and the strained relations between India and Pakistan all add to this uncertain backdrop.

Is the India-Pakistan Conflict a Trigger?

When asked if tensions between India and Pakistan are impacting gold prices, Garg was cautious in his response. While he acknowledged that such events could create short-term volatility, he stressed that the broader market forces are more influential.

“Geopolitical risks, including those between India and Pakistan, do play a role in increasing anxiety. However, they are not the core reason for the sustained rally we’re witnessing,” Garg said.

That said, investors often react to regional conflicts by moving their capital into safer assets. Gold, being historically reliable during crises, benefits from such risk-averse behavior.

Can This Rally Last?

Many are now questioning how long this upward trend can continue. Is a correction on the horizon?

Garg believes the direction of gold prices will largely depend on how current drivers evolve in the coming months. A major shift in global central bank policies or a reversal in inflation trends could lead to a cooling of prices.

“If central banks slow down or stop their gold purchases, or if the economic climate stabilizes, we may see prices come down,” he noted.

The likelihood of a reversal hinges on whether current fears—both economic and political—are resolved or deepen further.

What Should Investors Consider?

For retail investors wondering whether to buy, hold, or sell, experts recommend caution. While gold is a valuable asset for preserving wealth, investing at record highs carries risks.

Financial planners suggest limiting gold exposure to around 10–15% of one’s portfolio and recommend options like gold ETFs or sovereign gold bonds for safer, more structured investments. Rather than making lump-sum purchases during a price peak, systematic investing can help average out entry points and reduce risk.

Conclusion: A Complex Mix of Global Forces

The ongoing surge in gold prices is being driven by a confluence of economic, institutional, and geopolitical factors. While India-Pakistan tensions contribute to the overall environment of uncertainty, they are only one part of a broader story.

As Subhash Chandra Garg pointed out, the current rally is mainly rooted in central bank behavior, investor sentiment, and global financial trends. Until those dynamics shift, gold is likely to remain in demand.

For now, gold continues to serve as a beacon of security in an increasingly unpredictable world.