When border skirmishes flare or diplomatic relations sour, gold often jumps as investors seek safe-haven assets. Yet today, despite escalating tensions between two of the world’s largest gold-consuming nations—India and Pakistan—gold prices remain stable. In this comprehensive exploration, we analyze why gold prices remain stable despite rising tensions between India and Pakistan, dissecting the global macroeconomic context, regional demand factors, technical market signals, and investor positioning that together have muted the usual gold rally.
Geopolitical Tensions and Gold’s Safe-Haven Role
Historical Link Between Conflict and Gold
Gold’s centuries-old reputation as a store of value makes it a go-to refuge during geopolitical crises. Historically, events like the Gulf Wars, Russia’s annexation of Crimea, and U.S.–China trade disputes triggered spikes in bullion prices. When news broke of renewed cross-border shelling and drone strikes along the India–Pakistan Line of Control in May 2025, many expected gold to surge.
Expectations vs. Reality
However, gold prices remained stable—hovering around $1,950/oz—despite repeated ceasefire violations and military posturing. This counterintuitive outcome raises the question: what underlying forces have absorbed the shock and kept bullion anchored?
Macroeconomic Drivers Overshadow Regional Risks
Federal Reserve Policy and Real Yields
One of the primary reasons gold’s safe-haven bid was tepid lies in U.S. monetary policy. In early May 2025, the Federal Reserve held rates steady and projected only one rate cut by year-end. As a result:
- Real yields on 10-year TIPS stayed near zero.
- The U.S. Dollar Index (DXY) remained firm, trading around 103.
- Higher yields and a strong dollar typically reduce gold’s appeal.
These macroeconomic headwinds offset the incremental safe-haven demand stemming from India–Pakistan tensions, keeping gold prices stable despite regional fears.
Inflation Dynamics
Inflation data in major economies also influenced gold’s muted reaction. The April Consumer Price Index (CPI) in the U.S. rose 0.3% month-on-month—slightly below forecasts—while eurozone inflation held at 2.4% year-on-year. Moderate inflation reduces the urgency for inflation hedges like gold, undercutting one traditional driver of gold rallies during crises.
Regional Demand and Currency Effects
Indian Gold Demand and Rupee Impact
India accounts for roughly 20–25% of global annual gold consumption, primarily for jewelry. Yet local factors muted demand even as cross-border tensions escalated:
- The Indian Rupee (INR) weakened modestly to 83 per USD, making imports costlier.
- Higher import duties and anticipated Reserve Bank of India (RBI) interventions kept physical buying subdued.
- Many Indian buyers delayed purchases ahead of the wedding and festival season later in H2.
Consequently, India’s domestic demand failed to spike, removing a key pillar that might have driven gold prices upward.
Pakistani Demand and Currency Uncertainty
Pakistan’s gold market is smaller but still significant regionally. Rising tensions prompted some Pakistani rupee (PKR) depreciation, boosting local gold premiums. Yet overall demand was limited by:
- Import restrictions and foreign exchange shortages.
- Consumer caution amid economic uncertainty and rising interest rates in Pakistan.
This localized premium pressure was insufficient to move global prices, illustrating the importance of deep, diversified demand pools in driving bullion markets.
Technical Market Factors
Futures Positioning and COT Data
Speculative futures positions, as reported in the Commitments of Traders (COT) data, revealed:
- A modest increase in net-long positions ahead of the May tensions.
- Profit-taking at key resistance near $3,300/oz, keeping the market range-bound.
The absence of a sustained speculative squeeze underscored why gold prices remained stable, despite headline risk.
Support and Resistance Levels
Technically, gold traded within a tight band:
- Immediate support: $3300/oz.
- Immediate resistance: $3300/oz.
This consolidation pattern suggests market participants awaited clearer signals—either further Fed guidance or a deeper escalation—to break out. Lacking either, prices remained tethered.
Investment vs. Jewelry Demand Dynamics
ETF Flows and Institutional Buying
Physical gold ETFs saw only modest inflows of 4–5 tonnes over the past two weeks, contrasting with larger flows during past crises. Institutional investors balanced safe-haven bids with equity market gains, resulting in tepid net buying.
Jewelry and Retail Demand
Beyond India and Pakistan, global jewelry demand continued its seasonal recovery in China and the Middle East. However, these markets were focused on spring and summer collections rather than responding to geopolitical news. The net effect was neutral for overall gold prices.
Central Bank Activity as a Counterweight
Central Bank Buying Trends
Central banks remained active buyers of gold in Q1 2025, adding 135 tonnes to reserves—well above the five-year quarterly average. Their strategic purchases provided a price floor that neutralized sporadic safe-haven bids tied to India–Pakistan tensions.
Diversification and Reserve Policies
Emerging-market central banks, particularly in Asia, emphasized gold as a diversification tool against a strong dollar. This structural demand element helped absorb shocks and maintained price stability when regional conflicts flared.
Alternative Safe Havens and Market Sentiment
Crypto and Equity Alternatives
Investors increasingly view Bitcoin and select equities as alternative safe havens. During the India–Pakistan flare-up:
- Bitcoin traded above $65,000, drawing marginal safe-haven flows.
- Defense and aerospace stocks outperformed broader indices, capturing defense-related risk premiums.
These alternative outlets siphoned off potential gold demand, contributing to its stability.
Sentiment Indicators
Surveys of investor sentiment—such as the AAII Bullish Sentiment Index—showed only a modest rise in risk aversion. That tempered panic-driven gold buying, reflected in the restrained 0.66% gain on May 9.
Economic Data to Watch
Upcoming CPI and PPI Releases
Ahead of the next U.S. CPI and PPI prints, markets remained cautious. Any surprise could tilt the balance:
- Higher-than-expected CPI: Could revive the inflation-hedge case.
- Lower PPI: Might ease upstream inflation pressures and weigh on gold.
Fed Minutes and Speeches
Regional Fed presidents’ speeches in the coming days could clarify the central bank’s tightening timetable, potentially triggering a breakout from the current trading range.
Conclusion
Despite renewed India–Pakistan tensions, gold prices remain stable due to a confluence of macroeconomic headwinds, muted regional demand, technical consolidation, and alternative safe-haven venues. While geopolitical risk typically catalyzes stronger rallies, today’s scenario underscores the complex, multi-dimensional nature of modern gold markets.
For traders and investors seeking to navigate this environment, key takeaways include:
- Monitoring real yields and Fed guidance.
- Tracking ETF flows versus jewelry demand shifts.
- Paying attention to central bank buying as a stabilizing force.
- Watching technical levels at $3300 and $3350 for breakout signals.
By understanding these factors, market participants can appreciate why gold prices remain stable despite rising tensions between India and Pakistan and position themselves effectively for future volatility.
