Gold prices climbed this week amid mounting concerns over U.S. fiscal policy and rising market volatility, prompting a shift toward safe-haven assets. The gold price surge reflects growing uncertainty, especially after the approval of a debt-heavy budget bill triggered a sell-off in Treasury bonds and weakened the dollar, conditions that typically boost gold demand. Spot prices hit a two-week high, positioning gold for its strongest weekly performance in nearly a month. As global markets face heightened instability, gold is regaining traction as a hedge against inflation and economic shocks.
Investor Sentiment Shifts Amid Fiscal Uncertainty
Gold was on an upward trend on Friday, approaching $3,329 and gaining about 1% each day. This gold price surge marks a considerable continuation of the week’s bullish trend, largely driven by investor concern over the United States’ fiscal health and broader global volatility.
The market response reflects growing skepticism about the United States’ fiscal trajectory. The latest legislation, championed by President Donald Trump, has sparked fears of an expanding national debt burden. Analysts estimate the bill could increase the federal deficit by $3 to $5 trillion over the next decade. These developments follow a recent downgrade of the U.S. sovereign credit rating by Moody’s, which cited persistent fiscal imbalances and ballooning federal debt levels, now exceeding $36 trillion, as reasons for the lowered rating.
Bond markets have responded strongly to the deteriorating fiscal narrative. Yields on the 30-year US Treasury bond rose to 5.15%, the highest since December 2023, reflecting heightened investor appetite for returns amid rising risk. A dull 20-year Treasury auction signalled declining confidence in long-term US government debt, deepening the bond sell-off and putting more pressure on the dollar.
As US Treasury yields climb and the dollar weakens, gold has emerged as a preferred store of value. Spot gold rose 0.8% to $3,320.68 per ounce, while June futures saw similar increases. Notably, spot prices above futures indicate strong short-term demand. Gold is expected to close up 3.7% this week, its highest level since early April.
Additionally, this spike in price is further supported by increased geopolitical uncertainty. Markets have been rattled by tensions in the Middle East, particularly between Israel and Iran, despite US efforts to restart nuclear talks with Tehran. Meanwhile, tensions between the United States and China continue to rise, with restrictions on chip exports and allegations of economic coercion adding to investor concern.
Global Trends Driving the Gold Price Surge
Domestically, Indian gold futures mirrored the global gold price surge. MCX Gold for June delivery increased by 0.10% to ₹95,612 per 10 grammes during early trade, underpinned by foreign signals. However, low demand in the local spot market hampered gains. Traders are cautious yet bullish, with many recommending a “buy-on-dips” strategy given the current volatility in global financial markets.
In India, significant support and resistance levels for MCX gold are ₹95,050-94,600 and ₹96,000-96,650, respectively. Silver is expected to find support at ₹97,000-96,300 and resistance at ₹98,500-99,300. Other precious metals have also profited from the prevailing risk-off mentality. Silver futures increased 0.4% to $33.345 per ounce, putting them on course to gain more than 3% this week. Platinum rose 1.1% to $1,096.80, up more than 10% for the week, following a breakout from an extended consolidation period.
Conclusion
Analysts remain cautiously bullish about gold, despite good fundamentals. The metal has yet to surpass the critical $3,350 mark, and overbought signals point to a possible short-term pullback, particularly if bond yields stabilise or risk sentiment eases. However, the overall picture remains optimistic. Persistent US fiscal concerns, geopolitical uncertainties, and predictions of Fed rate reduction in 2025 continue to strengthen gold. A weaker dollar and rising real yields boost gold’s safe-haven appeal, ensuring that investor interest remains strong.
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