The Indian rupee might become weaker and lose its value in the event of escalation in tensions between India and Pakistan.

A weaker rupee will make gold imports expensive. Hence, gold prices in India may not see a fall and may even stay high.

Gold prices have witnessed a sharp correction recently, dropping from a record high of ₹1,01,530 per 10 gm on April 22 to ₹96,530 by May 3—a decline of ₹5,000, or approximately 5%, in the past 10 days. On Wednesday, gold prices were hovering around ₹99,840 per 10 gm in Ahmedabad. On the Multi Commodity Exchange (MCX), gold closed at ₹97,491 per 10 gm, marking a significant gain from the previous day.

"Gold is a cozy blanket during a storm. Whenever the world sees unrest, it is natural tendency for gold prices to go up being a safer asset. Prices would likely rise, but how much depends on how bad things get. A minor skirmish might not shake gold prices. 'Operation Sindoor' is likely to be neutral for gold. Gold is more driven by developments in China, Middle East and US," said N.S. Ramaswamy, Head-Commodity desk & CRM, Ventura.

But if the situation between the two countries improves and peace returns, the rupee might become stronger. A stronger rupee could make gold cheaper in India. Gold prices in India (such as on MCX, COMEX) may then fall more compared to the international market.

"Rising tensions between India and Pakistan could lead to Indian rupee depreciation, potentially cushioning domestic gold prices," says Kaynat Chainwala, AVP-Commodity Research, Kotak Securities. "However, any signs of de-escalation in the conflict could strengthen the rupee, possibly leading to a sharper decline in MCX gold prices compared to the international benchmark," she added.

Notably, COMEX gold prices edged lower on Wednesday, dipping below $3,370 per ounce, while MCX gold slipped beneath ₹97,000 per 10 gm. "Prices are likely to remain under pressure in the near term, as confirmation of the first formal trade talks between the U.S. and China, scheduled for this weekend, has sparked optimism that tensions between the world’s two largest economies may ease, dampening safe-haven demand," said Chainwala.

Investor attention should now be firmly on the FOMC policy decision due tonight. "Despite ongoing pressure from President Trump to cut rates, the Fed is widely expected to hold steady, favouring a cautious "wait and see" approach. Resilient U.S. labour data has further dampened hopes for an immediate rate cut, with the CME FedWatch tool now showing expectations for the next rate cut shifting from June to July," said Chainwala. Markets will also closely watch Fed Chair Jerome Powell’s comments for any hints about future monetary policy direction. Any softening of his recent hawkish tone could provide support for gold prices.

What you should do

Geopolitical tensions often influence gold prices and global markets. Gold is seen as a safe haven during uncertain times. "The latest move by India, attacking terrorist bases in Pakistan, may stir the market. In such situations, investors tend to move away from riskier assets such as equities and shift towards safer options like gold. This demand may push gold prices upward in the short term," said Adhil Shetty, CEO, BankBazaar.com

"The domestic gold price also depends on the rupee's strength against the dollar and import duties. A weaker rupee makes imported gold costlier, adding to price pressures. However, any kind of spike is usually short-term unless the situation prolongs," added Shetty.

Experts say that you should ideally stay calm, avoid panic buying, and restrict your exposure to 5–10% while maintaining a diversified portfolio, rather than reacting impulsively or overexposing to gold.