On 3 January, gold futures on MCX made a sharp surge of Rs 835 or 2.13 percent to close at Rs 40,112 per 10 grams. During the day it rose to an intraday high of Rs 40,143/ 10 grams after international gold prices reacted to the US airstrike that killed a top Iranian general.
In the global markets, gold rose by 1.5 percent to $1,551.8 per ounce, inches away from hitting a six-year high, last seen in September 2019, amid US-China trade dispute.
Why did gold prices jump?
Traditionally, the precious metal is a safe haven for investors in times of uncertainty in geopolitical or economic issues. Gold price in India is based on international market prices as well as foreign currency exchange rates.
How will gold prices move in the coming days?
Amid uncertainty over reaction from Iran, gold prices are likely to continue to experience upward momentum.
Additionally, weakening rupee on account of rise in oil prices (following the airstrikes) will push gold prices in India higher.
While gold futures on MCX in 2019 had advanced at the highest pace since 2010 at 27 percent, head of Commodities & Currency at Axis Securities expects it to scale up toward Rs 40,500-41,000 levels in the coming days if there is a breakout above Rs 39,000 on a weekly closing basis.
Why are US airstrikes in the Middle East significant?
The US airstrike killed the commander of Iran's Islamic Revolutionary Guards Corps (IRGC) Quds Force Qasem Soleimani when rockets hit his vehicle near the Baghdad International Airport on Thursday night. The Pentagon confirmed that the US Forces had conducted the operation at the orders of American President Donald Trump.
Soleimani's death is of great significance as he oversaw Iran's military operations across the Middle East. Also known as the second most powerful man in Iran, he has been in charge of all the proxy wars across the Middle East in Iraq, Syria and Yemen. The strike also killed Abu Mahdi al-Mohandes, the deputy head of the Popular Mobilization Forces.
Trump authorized five airstrikes on targets in Iraq and Syria, that were associated with an Iran-backed militia that the US has blamed to be responsible for a recent attack on an American military base in Iraq that resulted in the death of a US contractor.
Investors and analysts now have concerns over how Tehran will choose to respond to the killing of one of its key political figures.
Iran's foreign minister tweeted saying that the US bears responsibility for all consequences of its "rogue adventurism." Fars News Agency reported that Iran's top security body will be meeting to discuss Tehran's response.
Iran's Supreme Leader has called for three days of mourning while thousands of supporters took to the streets in the country to protest the killing. Leaders in Iran and militant group Hezbollah have vowed to seek revenge against the US.
Talking to the press on Friday, Trump said that the US does not seek "regime change" in Iran, but is "ready and prepared to take whatever action is necessary" if Tehran threatens American lives.
The already-high tensions between Iran and the US have been aggravated by the killings and caused high volatility in the capital markets on Friday. Oil prices peaked while equity markets declined.