On Wednesday, geopolitical tensions between India and Pakistan intensified sharply. The Indian military announced precision strikes on infrastructure within Pakistan and Pakistan-controlled Kashmir, prompting Pakistan to vow retaliation. Driven by rising geopolitical risks and ongoing Sino-US economic uncertainties, gold prices extended their gains, with spot gold breaking above $3,400 per ounce to hit a fresh two-week high.
The Indian government stated that the operation was “targeted, measured, and not intended to escalate,” emphasizing that no Pakistani military facilities were attacked. Witnesses reported widespread power outages in Muzaffarabad, the capital of Pakistan-controlled Kashmir, following explosions, though the exact nature of the blasts remains unclear.
A Pakistani military spokesperson later confirmed that India had launched missile strikes at three locations inside Pakistan and stated that “Pakistan will respond.”
This military confrontation occurs amidst steadily rising bilateral tensions. Last month, an attack in Indian-administered Kashmir killed 26 Hindu pilgrims, leading India to blame Pakistan-backed militants and promise a response. Pakistan has denied the allegations, claiming it possessed intelligence suggesting India was planning an offensive.
Supported by geopolitical instability, a weaker US dollar, and post-holiday Chinese buying, gold prices continue to strengthen. Spot gold surpassed $3,400 per ounce, a level not seen in over two weeks.
Trading volume surged as Chinese markets reopened after the holiday. Data from the Shanghai Futures Exchange shows volumes repeatedly hitting record highs in recent weeks, reflecting strong investor interest in gold within China.
Adrian Ash, Head of Research at BullionVault, noted, “The current gold rally is primarily driven by a combination of the Chinese investment surge and global central banks’ demand to reduce exposure to dollar-denominated assets, particularly US Treasuries.”
Meanwhile, the US dollar, traditionally a safe-haven asset, has shown weakness as investors grow increasingly cautious about the potential for new US trade agreements.
Daniel Ghali, Commodity Strategist at TD Securities, commented, “We are observing increased participation from Chinese speculators. In Western markets, gold remains significantly under-allocated despite technically overbought conditions. Both factors are expected to support gold prices in the medium term.”
