Gold: Going Up, Up And Up!

Why Are Gold Prices Going Through The Roof?

Economic uncertainty, ranging from fear of tariff wars to global conflicts and recessionary signs in the Eurozone area, led to the intial surge towards gold purchases, which investors see as a safe haven.

Besides this, central banks, including the RBI, have been buying gold in large tranches to safeguard their reserve holdings, which were being impacted by huge currency fluctuations. Most countries keep part of their holdings in dollars, euros, yen, and Swiss francs, considered to be safe currencies as they are usually stable. However, for some time now, these stable currencies too have shown signs of volatility. 

For instance, the RBI bought 72.6 tonnes of gold in 2024, compared to 18 tonnes in the previous year. Similarly, China's central bank, the People's Bank of China, purchased a total of 44 tonnes of gold in 2024. 

However, the current surge has to do with global uncertainty, with President Donald Trump’s erratic tariff imposts and withdrawals playing a large part in it.

The Back Story Linked To Fed Rates

The gold rush story really began a few years back. As US inflation rose in 2022, the Federal Reserve began hiking interest rates from March 2022 to July 2023. After that, there was no rate cut and the Fed kept rates unchanged, till September 2024.

That led to market expectations of rate cuts throughout 2024. Suddenly, gold became an attractive asset compared to the US dollar. Anticipating rate cuts, investors placed their bets on the yellow metal, and this started the gold price rally as early as February 2024.

The prolonged Russia-Ukraine war and heightened conflict in the Middle East throughout last year created huge geopolitical uncertainties, including re-routing of ships because of attacks in the Red Sea corridor.

Persistent inflation in the US, with a nagging fear of recession, added to these uncertainties. And the dollar started depreciating.

At this point, naturally, gold turned out to be the most attractive and the safest option to park money for everybody, including governments and central banks.

Central Banks Add To Their Gold Reserves

When central banks the world over increasingly started relying on gold as their safe havens of reserves, the metal added heft to the upward demand curve, like any other financial asset. With retail chains in the US and China selling gold bars in their shops, the demand has remained high ever since.

In any case, Indian consumers have a fascination for gold jewellery. All these factors transformed that fascination into another gold-buying spree.

Then came 2025, and President Trump’s reciprocal tariff antics imposed on almost all relevant economies of the world. Topsy-turvy geoeconomics, fear of recession, and geopolitical uncertainties have now gone up manifold.

What Lies Ahead For Gold 

So, the upward journey of gold prices is likely to continue this year. Fortunately, the Indian central bank has shown immense foresight in boosting its gold reserve substantially in 2024.

That should keep the Indian policymakers feeling relatively more secure in these uncertain times. The actual rate of return on gold will come as a bonus.

Said a director with MMTC-PAMP, a joint venture floated by the state-run MMTC, which deals with the bullion, "We feel gold will continue to outperform the stock market as despite a few dips it will retain its principal property of being a safe haven in troubled times especially as we are hypothesising that the dollar will try to come down against other currencies in a bid to make US industry more competitive."

Finance Ministry officials also indicated that their reading was that central banks around the globe will react to the currency volatility all around by banking on buying more gold. "We feel central banks that can afford it will head to converting more of their reserves into gold."

He added with a wry smile, "In a sense, you can say the gold standard is coming back into fashion".