“Gold Price Spikes Because…”: FM Nirmala Sitharaman Links Rally to Global Central Bank Buying
Union Finance Minister Nirmala Sitharaman attributed the sharp rally in gold prices to sustained accumulation by central banks across the world, suggesting that the current surge is being driven more by structural sovereign demand than by short-term speculative trading. Speaking at a press briefing after addressing the RBI Central Board on February 23, Sitharaman emphasised that global monetary authorities have been aggressively adding gold to their reserves as a hedge against geopolitical instability and currency volatility.
“Gold price spike because central banks globally buying a lot of it,” she said, underlining that this buying trend has created a strong floor under prices even as global markets face uncertainty. Her remarks signal that policymakers are viewing the rally through the lens of international reserve strategy rather than domestic demand imbalances.
Gold Extends Rally Amid Geopolitical and Trade Uncertainty
Gold prices strengthened further in both domestic and international markets, supported by escalating geopolitical tensions and renewed tariff threats from US President Donald Trump. The metal’s safe-haven appeal intensified as investors reassessed global trade risks and macro stability.
On the Multi Commodity Exchange (MCX), gold for February delivery opened at ₹1,60,049 per 10 grams for 24-carat purity — a 2.02% surge from the previous close. Internationally, bullion traded near $5,182 per ounce on Comex, reflecting a 2% rise over the past 24 hours. The parallel strength in both markets underscores how tightly domestic bullion pricing is now linked to global macro triggers.
The rally comes at a time when uncertainty around global tariff frameworks, currency volatility, and potential shifts in US monetary policy is elevating demand for traditional safe-haven assets. Investors appear to be increasing allocations to gold as a defensive hedge against unpredictable geopolitical outcomes.
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Structural Central Bank Demand Reshaping the Gold Market
Sitharaman’s comments highlight an important structural trend: central banks have been diversifying reserves away from US dollar-heavy assets and into gold over the past two years. This shift reflects broader concerns about geopolitical fragmentation, sanctions risks, and currency stability.
Large-scale sovereign purchases create durable underlying demand, reducing downside volatility and often reinforcing upward price momentum. Unlike retail or speculative flows, central bank accumulation tends to be long-term in nature, limiting the likelihood of abrupt liquidation.
This dynamic partially explains why gold prices have sustained elevated levels even during phases of stronger dollar performance — traditionally a headwind for bullion.
Domestic Prices Mirror Global Strength, Impacting Investment Choices
In India, benchmark bullion prices echoed global strength. The Indian Bullion Jewellers Association (IBJA) quoted standard 999-purity gold at ₹1,55,066 per 10 grams, up 0.33% from the previous session. These rates are significant because they form the pricing benchmark for Sovereign Gold Bonds (SGBs) issued by the Reserve Bank of India.
Elevated gold prices could influence retail allocation patterns, particularly between physical gold, gold ETFs, and SGBs. As prices approach psychological thresholds, investors often reassess entry points, potentially moderating fresh physical demand even as financial gold products continue attracting flows.
Silver prices also climbed sharply, with silver ETFs rising over 6%, reflecting broader momentum across precious metals.
RBI Signals Stable Import Volumes Despite Price Surge
RBI Governor Sanjay Malhotra stated that although gold prices have risen significantly, the overall value of gold import orders has not increased materially in recent months. This observation suggests that higher prices may be dampening incremental physical demand, thereby limiting pressure on India’s trade balance.
Historically, spikes in gold imports have widened the current account deficit. However, stable import volumes indicate that demand is adjusting to elevated price levels rather than accelerating uncontrollably.
This balance may help cushion macroeconomic impacts even if prices remain elevated.
Liquidity Conditions Comfortable, No Immediate Policy Alarm
Addressing broader financial stability concerns, Sitharaman reiterated that liquidity conditions remain comfortable and credit availability is assured for the foreseeable future. She clarified that there is no systemic concern regarding IDBI Bank and emphasised that the government does not comment on specific institutions as a matter of policy.
“The Reserve Bank of India has adequate liquidity. Credit availability is assured for up to five years. We will meet whatever requirements the country has,” she said.
These remarks aim to reassure markets that rising gold prices are not symptomatic of domestic financial stress but are largely a function of global macro developments.
Trade Deals and Capital Flows Under Watch
On the subject of potential US tariff measures, Sitharaman said the Ministry of Commerce is evaluating developments but described it as premature to provide detailed commentary. She reaffirmed the government’s commitment to pursuing free trade agreements (FTAs) that benefit India’s economy.
Interestingly, she also pointed to broader global and political factors influencing capital flows into India. While macroeconomic stability and growth prospects remain strong, she acknowledged that geopolitical considerations may be shaping foreign investment patterns.
“Global capital flow is based on macroeconomic stability and predictability. We expect funds to flow to India, but it doesn’t happen in that sense. We will have to see what is holding them back,” she noted.
Bigger Picture: Gold as a Strategic Hedge
The current rally reflects a confluence of forces:
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Aggressive central bank accumulation
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Rising geopolitical tensions
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Trade policy uncertainty
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Concerns about inflation and currency volatility
If these conditions persist, gold could remain structurally supported even if short-term corrections emerge. For investors, the trajectory of US monetary policy, geopolitical developments, and central bank reserve strategy will be critical determinants of future price direction.
Bottom Line
Finance Minister Sitharaman’s remarks suggest that the gold rally is being underpinned by structural global demand rather than domestic speculative excess. While the government continues monitoring price trends, there is no indication of immediate policy intervention.
With central banks driving long-term accumulation and geopolitical risks elevated, gold may continue to command a premium in global portfolios — reinforcing its role as a strategic hedge in uncertain times.
