Gold yesterday settled higher by 1.31% at Rs 1,26,256 as investors sought refuge in safe-haven assets due to escalating US-China trade tensions and revived anticipations of US interest rate reductions. The geopolitical landscape continued to exhibit tension as China declared additional retaliatory actions against American companies, in response to President Trump’s warning of imposing 100% tariffs on imports from China.

Moreover, apprehensions intensified regarding the extended US government shutdown, as Treasury Secretary Scott Bessent cautioned that it is beginning to affect the economy. Market participants are increasingly expecting a 25-basis point reduction in interest rates by the Federal Reserve in October, followed by an additional cut in December, which is bolstering optimistic sentiment in the precious metals sector. On the physical front, India’s gold demand remained strong despite record-high prices, as jewellers increased their inventories in anticipation of key festivals, resulting in local premiums rising to $15 per ounce from $9 last week.

In contrast, China’s demand exhibited weakness following the holiday period, as discounts ranging from $48 to $60 per ounce were implemented to entice buyers. In August, Switzerland’s gold exports to China experienced a remarkable increase of 254%, reaching 35 tons. Meanwhile, shipments to India also saw a rise, totaling 15.2 tons. This trend underscores a robust demand from Asia, even in the face of elevated prices. Exports to the US experienced a significant decline as a result of uncertainties surrounding tariffs.

From a technical perspective, the market is experiencing short covering, evidenced by a 0.36% decline in open interest to 15,648 lots, alongside a price increase of Rs 1,627. Gold currently has support levels at Rs 1,24,690 and Rs 1,23,125, while resistance is identified at Rs 1,27,375, with the possibility of testing Rs 1,28,495 should bullish momentum continue.