Gold prices made a historic surge in the domestic market to hit an all-time high of Rs123,000 per tola on Tuesday.

Since international gold is dollar-denominated, any weakness in the dollar pushes up gold prices and vice versa.

Analysts have attributed the rise to various factors, including global economic uncertainties and geopolitical tensions.

Monday’s rise in the international markets follows the publication of weaker US economic data last week, which sparked hope for the Federal Reserve's first rate cut of the year in June.

The price of gold is generally inversely related to the value of the US dollar because the metal is dollar-denominated.

A stronger US dollar tends to keep the price of gold lower and more controlled, while a weaker US dollar is likely to drive the price of gold higher through increasing demand. For instance, if the dollar becomes weaker, more gold can be purchased.

As gold is considered a safe investment tool in many countries, due to continued geopolitical and economic tensions, it encourages investors to buy gold as a safe haven asset.

Nepalis buy gold, especially on two occasions—marriages and festivals like Teej, Dashain and Tihar. Hindus consider it auspicious to invest in gold on festive occasions. Festivals also put more money in people's pockets as employees get bonuses, and they usually splurge on luxury items.

According to international media reports, gold prices made a historic surge to reach $2,126 per ounce on Monday, marking the highest closing since the inception of contracts in 1974.

In Nepal, gold traded at Rs119,000 per tola on Friday, the closing day.

On Sunday, the opening day, the price increased by Rs2,000 per tola to Rs121,000. The price remained unchanged on Monday, before hitting a record on Tuesday.

“The price was stable, hovering at around Rs118,000 per tola, in recent months,” said Manik Ratna Shakya, president of the Federation of Nepal Gold and Silver Dealers' Associations.

“The increasing tension between Russia and Ukraine shows gold prices may make new records,” he said.

“There are fewer chances the price will come down in the current situation.”

Reports say that Russian President Vladimir Putin warned of a “real” risk of nuclear war if the Western countries sent troops to fight in Ukraine during an annual address to the nation two weeks ahead of the presidential election, investors are increasingly buying gold.

According to Shakya, during times of financial or political uncertainty, gold holds no risk of becoming worthless, unlike currencies or other assets bearing credit risk.

In the international market, the gold price is forecast to reach $2,175 per ounce by the end of this year.

In Nepal, apart from international prices, which are denominated in dollars, import duties and other taxes also play a role in determining gold rates in Nepal.

From the start of this fiscal year, in mid-July, the government imposed a 15 percent customs duty on gold in a bid to stem imports.

As gold has become expensive, Nepalis have stopped buying gold as a result imports have dropped significantly.

According to the Department of Customs, Nepal imported 1.64 tonnes of gold worth Rs13.77 billion in the first seven months of the current fiscal year, which ended in mid-February.

Imports were 2.05 tonnes worth Rs31.02 billion in the same period last fiscal year. The country imported gold, mainly from the United Arab Emirates, followed by Turkey.

Insiders, however, say that the rising gold smuggling would be a key factor behind reduced buying in the domestic market.

Nepal has earned the status of becoming a hub for gold smuggling.

In July last year, police seized 60kg of gold from Kathmandu's Tribhuvan International Airport, concealed inside motorcycle brake shoes.

On December 7 last year, Chandra Ghale of Barpak, Gorkha who arrived in Kathmandu by a flydubai flight, was arrested with 14 kilograms of gold at the airport. He had concealed the gold bars in a waistcoat-like vest that he had worn.

Earlier in January 2017, the Central Investigation Bureau (CIB) of Nepal Police had seized 33kg of gold from a locality near the Kathmandu airport. The gold had also passed undetected through the customs.

In the past decade, police and different customs units and the Department of Revenue Investigation have confiscated over 665 kg of gold smuggled into Nepal through Hong Kong, the UAE, China, and other countries. Police arrested 706 people in connection with the smuggling cases, according to a report.

Bullion traders said that despite the ongoing wedding season, demand for gold in the domestic market remained subdued.

“The increase in gold price by Rs5,000 per tola within a week is not good news for bullion traders amid the ongoing wedding season,” Manik Ratna Shakya said.

However, Tej Ratna Shakya, past president of the federation, says that price is the only factor behind weak sales.

Due to the eroding income of people and since gold has hit the six-digit mark, only a few Nepalis are visiting the bullion market, traders say.

“The daily transaction is 20 kg amidst the wedding season due to the economic slowdown and increase in gold rates. Normally, the bullion market used to make transactions of at least 35 kg to 40 kg daily during the wedding season,” said Tej Ratna Shakya.

The country imported gold worth Rs51.53 billion in the fiscal year 2022-23.