Gold Prices Predicted to Skyrocket Amid Escalating West Asian Tensions

Rising West Asian geopolitical tensions could propel gold prices to USD 6,000 per ounce, weakening the Rupee to 92-92.5 against USD, Elara Capital reports. Potential disruptions from conflicts could affect oil flows, influencing global markets. While gold may benefit, Nifty returns may stay flat in the near term.

According to a report by Elara Capital, heightened geopolitical tensions in West Asia could drive gold prices to a staggering USD 6,000 per ounce, while concurrently, the Rupee might weaken to between 92 and 92.5 against the US dollar. The growing conflict could provide a significant boost to gold, which is already benefiting from ongoing central bank and ETF-related purchases, thanks to an escalating geopolitical risk premium.

On Monday morning, commodity markets saw gold prices increase by 3 percent to Rs 1,67,329 per 10 grams for 24-karat gold, whereas silver saw a 3.89 percent rise to Rs 2,85,700 per kilogram. Elara Capital expressed confidence in the yellow metal, noting that the current central bank and ETF buying wave would likely be supplemented by additional geopolitical premiums.

If oil prices stay at or above USD 90 per barrel in the upcoming months, it may add approximately 0.3 to 0.4 percentage points to the expected current account deficit, anticipated at 0.9 percent of GDP for FY27E. In such scenarios, the USD-INR is predicted to fall to 92-92.5. An escalation in conflict beyond last year's '12 Day War' against Israel could inhibit oil flows from the Strait of Hormuz, posing risks to Asian economies heavily reliant on these routes.

Despite reports of US President Donald Trump considering dialogue with Iran's new regime in hopes of reducing tensions, Elara Capital warns that the success of these talks is uncertain. In terms of equity markets, the firm noted average historical Nifty returns during Middle Eastern crises have been flat in the first week and month, with gains around 17 percent after one year.

Historically, a sustained energy shock, as seen during the 2011 Arab Spring, can lead to sharper sell-offs, with Brent crude prices having surged by 20-25 percent within the first month, resulting in significant equity drawdowns. While gold may see sharp rallies in the face of rising tensions, Nifty returns could remain stable short-term, hinging on whether the tension evolves into a prolonged energy crisis.

(With inputs from agencies.)