2025 is turning into the year of gold.
Prices of the yellow metal are galloping towards historic highs and at such blistering speeds that none imagined.
On Thursday, the spot price crossed a record high of $4,320 per ounce — the highest weekly gain since 2008 — and continued its march on Friday to settle at $4,365 per ounce. As for the domestic market, 24K gold was retailing at an all-time high of Rs 1.33 lakh per 10 grams.
So far in 2025, the precious metal has gained over 60% and nearly 100% since the current rally began in early 2024. The speed of the upswing is much faster than forecasts and as the bullion bonanza continues to reach what could be the third-straight year of double-digit gains for gold, analysts are pegging gold to breach $5,000 per ounce in 2026.
Prices are surging due to a host of factors: geopolitical tensions, aggressive interest rate-cut bets, unprecedented central bank buying, de-dollarisation and robust Exchange Traded Funds (ETFs) inflows. Amid relentless demand from retail and institutional buyers, bullion is on track for its strongest annual performance since 1979 and 1980, when prices jumped by 126%, thanks to the revolution in Tehran, which jacked up oil prices and rocked the global economy, closely followed by the Soviet invasion of Afghanistan. Per estimates, between 1978 and 1980, gold prices quadrupled from about $200 to over $850 per ounce, though prices plunged from their peaks in subsequent years.
Interestingly, the current rally mirrors the previous bull runs in gold. Notably, gold has climbed from $3,500 per ounce to $4,320 in less than two months, compared to an average 30 months it took in ordinary course, according to the World Gold Council (WGC). The biggest question is ‘how much room is left to run?’
There are no clear answers, but what’s certain is that gold prices will continue to sparkle simply because of its scarcity. According to WGC, if all the gold ever mined was gathered into a single cube, it would measure approximately 22 metres on each side.
Other reasons that explain the current record gold run and rally further include global economic uncertainties on account of rising government debt, which forced the US government into a shutdown. Besides, there are growing concerns about the independence of the US Federal Reserve and whether political interference influences interest rate cuts.
But these are only ancillary factors and aren’t the main drivers behind gold’s ongoing price rise, according to some. What’s driving the current rally is the growing demand from gold ETFs.
According to WGC data, ETF inflows topped $26 billion during the September quarter alone and for the nine months ending September inflows stood at $64 billion.
According to Goldman Sachs, buyers of gold fall into two broad groups. Conviction buyers (including central banks, ETFs and speculators) consistently buy gold regardless of the price, and their buying tends sets the price direction. As a rule of thumb, every 100 tonnes of net purchases by these conviction holders corresponds to a 1.7% rise in the gold price.
The other group, classified as opportunistic buyers include households, who step in when they believe the price is right.
In addition to retail investor demand for ETFs, emerging market economies, notably China and Russia, are switching their official reserve assets out of currencies like the US dollar and into gold. According to the IMF, central bank holdings of physical gold in emerging markets rose by 161% since 2006 to about 10,300 tonnes.
Central banks, particularly in emerging markets, have increased the pace of gold purchases roughly fivefold since 2022, when Russia’s foreign currency reserves were frozen following its invasion of Ukraine. Central banks are expected to continue accumulating gold as many view the major Western currencies as carrying unwanted risk of financial sanctions.
As per WGC data, they bought 1,082 tonnes in 2022, 1,037 tonnes in 2023, and a record 1,180 tonnes in 2024, which is more than double the earlier annual average of about 500 tonnes.
Russia became a net buyer of gold in 2006, and has been accumulating gold reserves since and now has one of the largest stockpiles in the world. China too is following suit, buying gold reserves in lieu of government bonds, reducing dependency on the US currency. In fact, several emerging markets including India are piling on the yellow metal.
Analysts expect further de-dollarisation efforts by emerging market economies. Gold then, in the long term, has only one direction it can take. Considering hitching your wagon to the golden star?
