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Picture Courtesy: Indian Express

Context:

Gold prices have experienced a remarkable surge this year, rising over 60%, reaching record highs. However, after a recent decline for three consecutive days, questions are emerging about whether this impressive rally is coming to an end.

Current trends:

• Gold prices have experienced a significant increase in 2025, with prices surpassing $4,000 per ounce for the first time. As of mid-October, gold reached a record high of approximately $4,250.89 per ounce, marking a rise of over 60% year-to-date. (Source: Reuters) 

• Central Bank Purchases: Countries like China, Russia, and India have been increasing their gold reserves to diversify away from the U.S. dollar. (Source: Reddit) 

• Inflation Concerns: Persistent inflation in major economies has led investors to seek gold as a hedge against currency devaluation. 

• Weaker U.S. Dollar: A declining dollar makes gold more attractive to holders of other currencies.
• Geopolitical Uncertainty: Ongoing conflicts and economic instability have heightened demand for safe-haven assets. 

• Goldman Sachs has raised its 2026 price target to $4,900 per ounce, citing robust demand and limited supply growth. (Source: markets.businessinsider.com) 

Why Is There So Much Demand?

The initial upward trend began over three years ago when the US imposed sanctions on Russia after the Ukraine invasion. In response, central banks—led by China and India—began diversifying their foreign reserves away from the US dollar, increasing their gold holdings.

More recently, the surge has been fuelled by strong demand for Gold ETFs (Exchange Traded Funds), which require physical gold to back their shares. This has driven up the price of physical gold worldwide. In India alone, gold ETF investments in September 2025 were nearly seven times higher than the same period last year. 

Impacts:

Economic Impact

• Inflation Hedge: Gold's price surge (over 60% in 2025) reflects its role as a safe haven against inflation, which remains persistent globally.
• Currency Devaluation: The weakening of the US dollar and Indian rupee has increased gold’s attractiveness as an alternative asset. (Source: Reuters, Markets Insider)

Investment Trends

• Central Bank Reserves: Major central banks (China, India, Russia) increased gold holdings to diversify reserves, driving demand.
• ETF Inflows: Gold ETFs saw record inflows, with Indian gold ETF investments nearly 7x higher YoY in September 2025. (Source: Reuters)

Industrial and Consumer Effects

• Jewellery Demand: Festive season demand in India boosts physical gold purchases, impacting local markets and prices.
• Limited Supply Growth: Gold mine production grows only ~1.5% annually, constraining supply amid rising demand. (Source: Holidays2Kerala, Market Reports)

Geopolitical and Market Stability

• Safe Haven Asset: Ongoing geopolitical tensions and economic uncertainties fuel gold’s role as a risk-off investment.
• Market Diversification: Gold’s rally occurring alongside stocks and crypto challenges traditional asset correlation models. (Source: Wharton School) 

Government Measures:

Way Forward:

• Further Reduction in Import Duties: To align domestic prices with global rates and curb smuggling, experts suggest that the government consider further reducing import duties on gold. A proposed 3% cut could help bridge the price gap and discourage illegal imports (Source: Money control.) 

• Regulation of Digital Gold: With the growing popularity of digital gold platforms, establishing a dedicated regulatory framework could enhance investor confidence and ensure transparency in the market (Source: Money control.) 

• Revisiting the Gold Monetisation Scheme: The government has discontinued certain parts of the Gold Monetisation Scheme due to rising prices and evolving market conditions. Revisiting and restructuring this scheme could encourage households to deposit idle gold, increasing supply and potentially stabilizing prices (Source: Reuters.)
• Strengthening Enforcement Against Smuggling: Enhancing surveillance and enforcement at borders and airports, coupled with stricter penalties for illegal gold trade, could help reduce smuggling activities and stabilize market prices 

Source: Indian Express