Gold Hits ₹85,000! Surges 11% – What’s Driving the Rally?

Gold prices have been on a relentless upward trajectory in 2025, breaking records one after another. In just under two months, the precious metal has already set 12 all-time highs, with its latest peak reaching $2,906 per troy ounce in international markets. In India, domestic gold prices surged past the ₹85,000 mark per 10 grams, reflecting an increase of nearly 11% since the beginning of the year.

This sustained rally comes on the back of several macroeconomic and geopolitical factors, central bank policies, and shifting investor sentiment. Let’s break down the key drivers behind this surge and what it means for the global financial landscape.

1. Global Economic Uncertainty Sparks Safe-Haven Demand

Gold has always been a preferred safe-haven asset during times of economic turbulence. In 2025, trade tensions, inflation concerns, and global political instability have significantly boosted demand for gold as investors seek stability.

• The United States recently announced a 25% tariff on steel and aluminum imports, sparking fears of an escalating trade war.
• This uncertainty has led investors to pull money out of equities and shift it into safer assets like gold.
• Historically, when geopolitical risks rise, gold tends to perform well, and the trend is continuing in 2025.

According to a recent report, gold’s recent surge has been largely fueled by these escalating tensions, prompting major institutions and retail investors alike to hedge their risks with gold.

Source MCX India

2. Central Banks’ Aggressive Gold Purchases

One of the most critical factors driving gold prices higher is massive buying by central banks worldwide. 

• In 2024, central banks purchased over 1,000 tons of gold for the third consecutive year.
• China has been a leading buyer, adding gold to its reserves for the third straight month in early 2025.
• The Reserve Bank of India (RBI) has also increased its gold reserves, pushing the total to 876 tons, marking a 122-ton increase since 2021.

This strong central bank demand has restricted supply in global markets, putting additional upward pressure on prices.

According to data from the Bank of England, there has been a sharp increase in gold withdrawals, indicating strong physical demand from major institutions.
Source: Mint

3. U.S. Inflation and Interest Rate Expectations

Gold is widely seen as a hedge against inflation, and rising inflationary pressures in the U.S. have played a crucial role in its rally.

• The U.S. Federal Reserve’s decision to cut interest rates has weakened the U.S. dollar, making gold more attractive to global investors.
• A weaker dollar makes gold cheaper for foreign investors, increasing demand.
• Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, leading to higher investment inflows into gold ETFs and bullion.

According to The Wall Street Journal, speculation about further rate cuts in the coming months has fueled expectations that gold’s rally could continue further into 2025.
Source: Business Standard

Source: Mint

4. China’s De-Dollarization Strategy

Another major driver behind gold’s rise is China’s ongoing efforts to reduce reliance on the U.S. dollar in its foreign exchange reserves.

• China has been steadily reducing its U.S. Treasury holdings while aggressively buying gold as an alternative reserve asset.
• Gold now accounts for 5.53% of China’s total reserves, and this percentage is expected to rise as the country continues its diversification strategy.
• China is also the world’s largest importer of gold, contributing significantly to the surge in demand.

This strategy is not unique to China. Several other emerging economies, including Russia, India, and Turkey, have also been shifting their foreign reserves toward gold, further amplifying its price rally.

5. Supply Constraints and Market Speculation

While demand for gold has surged, supply has remained tight, contributing to the steep price rise.

• Data from New York’s COMEX commodity exchange shows that traders imported 393 metric tonnes of gold, pushing inventories to their highest level since the COVID-19 pandemic.
• Reports indicate that the waiting time to withdraw gold from the Bank of England has now stretched from a few days to nearly four weeks due to the surge in demand.

Additionally, market speculation has further fueled gold’s rally. Gold ETFs (Exchange Traded Funds) and futures markets have witnessed strong inflows, signaling that both institutional and retail investors expect prices to go even higher.

Nowadays, investors are increasingly moving into physical gold, adding more pressure on supply and keeping prices elevated.
Source: Mint

6. Donald Trump’s Economic Policies Add to the Momentum

Donald Trump’s return to the U.S. presidency has introduced policy-driven volatility into the global economy.

• His protectionist trade policies and tariff threats have increased uncertainty in financial markets.
• Investors fear that his aggressive stance on China and global trade could slow down economic growth, prompting them to hedge their investments with gold.
• Additionally, Trump’s policies favor lower corporate tax rates, which could lead to a higher debt-to-GDP ratio, potentially weakening the U.S. economy further.

These factors have strengthened the case for gold as a long-term store of value, further driving up demand and prices.

7. The Outlook for Gold in 2025

With 12 record highs already set in the first two months of 2025, the question on everyone’s mind is: What’s next for gold?

• Analysts suggest that if geopolitical risks and economic uncertainties persist, gold could continue its upward trend throughout the year.
• Some forecasts indicate that gold may test the $3,000 per ounce level in the coming months if inflation remains high and central banks continue their buying spree.
• On the domestic front, gold prices in India may climb beyond ₹90,000 per 10 grams if demand remains strong.

However, there are potential risks to the rally as well.

• If the U.S. Federal Reserve reverses its rate cuts or signals a stronger-than-expected economy, gold’s momentum could slow down.
• A strengthening dollar could also put some pressure on prices, as gold becomes relatively more expensive for foreign buyers.

Nonetheless, given the current global economic landscape, gold’s role as a safe-haven asset remains firmly intact, making it one of the most watched assets in 2025.

Conclusion

Gold’s unprecedented rally in 2025 has been fueled by a combination of economic uncertainty, central bank purchases, inflation concerns, currency fluctuations, and geopolitical risks. With prices crossing ₹85,000 per 10 grams in India and $2,906 per ounce globally, the metal has cemented its status as one of the best-performing assets this year.

Whether this rally sustains depends on how global markets react to evolving economic conditions, but for now, gold continues to shine as one of the most sought-after investments in the world.

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