New Delhi [India], March 2 : Gold prices could surge to USD 6,000 per ounce, and Rupee may weaken to 92-92.5 against USD if West Asian conflict escalates further, according to a report by Elara Capital.
The report said gold stands to benefit significantly from rising geopolitical tensions. Apart from continued central bank and ETF-related buying, gold is likely to receive an additional boost from geopolitical risk premium.
In commodity markets on Monday morning , gold prices surged 3 per cent to Rs 1,67,329 per 10 gm for 24 karat, while silver prices rose 3.89 per cent to Rs 2,85,700 per kg.
The Elara Capital report stated, "We remain positive on gold as central bank, ETF-related buying now is likely to be complemented by geopolitical risk premium".
The report noted that if oil prices sustain at USD 90 per barrel or higher in the coming months, it would add around 0.3-0.4 per cent to its baseline current account deficit (CAD) estimate of 0.9 per cent of GDP for FY27E. In such a scenario, the USD-INR is expected to weaken to 92-92.5.
It also highlighted that if the conflict escalates and lasts longer than last year's "12 Day War" against Israel, oil flows from the Strait of Hormuz could be restricted, triggering a spike in global supply chain risks. More than 80 per cent of crude transiting through the Strait of Hormuz is destined for Asia, which could result in heightened stress for Asian markets.
While recent media reports suggest that US President Donald Trump has agreed to talk with the new regime of Iran, a move seen as a step towards de-escalation, the brokerage cautioned that how fruitful these talks would be remains highly uncertain.
On the equity front, Elara Capital said historical trends over the past twenty-five years of Middle East crises show that median Nifty returns have been flat at one week and one month, and around +17 per cent at one year.
However, the sell-off tends to be sharper when geopolitical tensions evolve into a sustained energy shock.
It added "History of last twenty-five years of Middle East crisis, shows median Nifty returns are flat at one week and one month, and +17 per cent at one year".
During the 2011 Arab Spring phase, Brent crude rose 20-25 per cent in the first month and equity drawdowns widened.
So, the report suggested that while gold may rally sharply amid escalating tensions, Nifty returns could remain flat in the near term, with the trajectory depending on whether the situation turns into a prolonged energy shock.
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