• Local gold prices soar past Rs. 238,000 per sovereign
• Central banks ramp up gold buying amid inflation fears
• Trump’s trade and bitcoin moves rattle markets, lift safe-haven demand
• Rumours swirl of US gold selloff to fund bitcoin reserves

Gold prices in the local market hit new all-time highs amidst the brewing global trade war, inflationary fears, and increased gold purchases by central banks across the globe.

Speaking to The Sunday Morning Business, Mohammed Nahilan of Ran Lanka Gem and Jewellery stated that gold prices had surged over the past four weeks or so due to the effects of the brewing global trade war and ongoing military conflicts, causing local prices to reach historic highs. 

However, he added: “There is a rumour that the US is looking to sell its gold to the market. At the same time, one of the reasons for the increase in gold prices is that governments are buying gold in the world market.”

Accordingly, he revealed that as of Thursday (27), local market prices had reached historic highs with the price for 24 carat 8 g (1 sovereign) of gold at around Rs. 238,000, while the price for 22 carat 8 g (1 sovereign) of gold had reached Rs. 219,000.

Speaking to The Sunday Morning Business, Frontier Research Head of Macroeconomic Advisory Chayu Damsinghe stated that although gold prices were quoted in Sri Lankan Rupees in the country, the primary driver of gold prices in Sri Lanka was not necessarily what happened within the country. 

Instead, he noted that local gold prices were mainly influenced by the value of gold in the international market and depreciation of the rupee.

Damsinghe also noted that one of the factors causing the current uptick in gold prices was the uncertainty in the global environment, which saw gold prices in the international market surpass $ 3,000 per ounce around two weeks ago to reach an all-time high.

“Whenever there is a lot of uncertainty in the global environment, investors will flock to safe-haven assets. Gold is one such safe-haven asset. 

“Investors believe that whatever happens, gold will retain its value. Regardless of whether this is true or not, many investors believe it and have been moving towards such safe-haven assets,” he explained. 

Damsinghe further pointed out that investors were also moving towards gold as a safe-haven asset due to concerns regarding inflation within the system as a result of the aggressive tariff policies of US President Donald Trump.

“The idea is that gold will retain its value even though there is inflation across the rest of the world,” he said.

However, according to Damsinghe, the primary reason for the uptrend in gold prices observed over the past two years is the purchasing of gold by central banks across the globe, particularly those in East Asia, South Asia, and Europe.

“Historically, for 50 years or more, the reserves of central banks had been invested in US Treasury bills and bonds. However, since that amounts to putting everything in one basket, over the past 10-15 years, and particularly over the last 3-5 years, there has been a gradual and now a sudden increase in the amount of gold being purchased by central banks. 

“Naturally, this means that there are increasingly more people demanding gold, and as demand rises, so does the price of gold,” he noted.

According to Reuters, spot gold rose to $ 3,030.47 an ounce on Thursday, following the announcement of a 25% tariff on imported cars and light trucks starting next week by President Trump. 

President Trump’s tariff policies saw gold prices reach a record high of $ 3,057.21 on 20 March.

Following the US President signing an Executive Order on 6 March to establish a Strategic Bitcoin Reserve by acquiring Bitcoin through ‘budget-neutral’ ways, there was speculation that the US may look to sell a portion of its gold reserves to purchase bitcoin.