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Why Are Gold Prices Rising? Unpacking the Key Reasons (2025 Update)
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LAST EDITED BY ANKANA GHOSHAL ON MAY 12, 2025.
LAST EDITED BY ANKANA GHOSHAL ON MAY 12, 2025.
GUIDES LAST EDITED BY ANKANA GHOSHAL ON MAY 12, 2025.
In 2025, gold prices have hit unprecedented levels, capturing both investor focus and global headlines. One would expect this sharp surge to be a fleeting market trend, but it actually is a result of a confluence of economic, geopolitical, and monetary factors. For a country like India, where gold is deeply rooted in cultural traditions and monetary forces, the abnormal price hike is more than just a statistic. It impacts households, businesses, and the broader economy.
With every headline screaming questions like — “why gold price is increasing” or “why gold rate is increasing in India” it’s crucial to examine the underlying causes of this sustained price hike. This blog dives into the trends, the numbers, and the gold price rise reason dominating the market conversation. It also addresses the pressing question: will gold price increase further in the months ahead? But before that, let’s understand the gold price trends in India over the last few years.
According to a 1st April 2025 Forbes India report, over the past five years, gold prices in India have shown a consistent upward trajectory:
This represents a nearly 70% increase from 2020 to 2025, underscoring gold's resilience and appeal as a safe-haven asset.
Several interrelated factors contribute to the escalating gold prices:
Global conflicts, such as the ongoing tensions in the Mediterranean, have heightened investor anxiety. Traditionally viewed as a safe-haven asset, gold becomes more attractive during such periods. Additionally, economic uncertainties, including recession fears and fluctuating interest rates, further drive investors toward gold.
Central banks worldwide have been increasing their gold reserves. This trend, intensified after G7 nations froze Russian reserves in '22, has led to a structural shift in gold demand. In a recent report, Goldman Sachs states that this continued demand for gold has disrupted the historical correlation between prices of metals (gold and silver), with gold now outperforming silver significantly.
Trends suggest that a weakening US dollar typically makes gold affordable for investors holding other currencies, thereby triggering a global demand. This proves to be the major reason for the gold price increase across global markets. In India, however, the narrative changes. With the Indian rupee depreciating steadily against the dollar in recent times, gold (which is largely imported) has become significantly more expensive domestically. This currency depreciation is a key reason why the gold rate is increasing in India, even when global prices remain relatively stable. As the cost of importing gold rises, jewellers and retailers pass on the pricing burden to consumers, which leads to a sustained increase in gold pricing.
Rising inflation erodes purchasing power, prompting investors to seek assets that preserve value. Gold effectively serves this purpose. Moreover, lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, enhancing its appeal.
The growing demand for gold in populous countries like China and India continues to exert upward pressure on global prices. Gold is considered auspicious in the cultures of both these nations. In India, gold is widely gifted at occasions like weddings, symbolising wealth and prosperity. Plus, buying gold is considered auspicious during festivals like Diwali and Akshaya Tritiya. China, meanwhile, also finds gold a symbol of good fortune, especially during festivals like the Lunar New Year.
This cultural affinity translates into strong retail demand, particularly during peak seasons, amplifying the metal’s market value. As incomes rise and urbanisation spreads, consumption patterns in these regions have also evolved, with more consumers viewing gold not just as ornaments but as a long-term investment and hedge against inflation.
The surge in gold prices has multifaceted effects on India's economy: .
India is one of the largest importers of gold. Higher gold prices increase import bills, exacerbating the trade deficit and putting pressure on the current account balance.
The jewellery sector faces challenges as higher gold prices can dampen consumer demand. However, demand often remains resilient during cultural festivals and weddings, albeit with consumers opting for lighter or alternative designs.
Rising gold prices influence investment behaviours, with more individuals considering gold as a viable investment option. This shift can divert funds from other productive sectors, impacting overall economic growth.
The global economy is not insulated from the effects of soaring gold prices:
Central banks must navigate the delicate balance between controlling inflation and supporting economic growth. High gold prices can signal market concerns about inflation and currency stability, influencing monetary policy decisions.
Investors may reallocate portfolios in favour of gold, affecting capital flows into equities and bonds. This reallocation can impact funding for businesses and governments, influencing economic activity.
With multiple market and geopolitical factors at play, it is difficult to predict the price of gold in the days to come. However, analysts offer varied projections for gold's trajectory:
Goldman Sachs claims gold prices may reach $3,700 per ounce by year-end, driven by continued central bank demand and geopolitical uncertainties.
J.P. Morgan predicts an average of $2,950 per ounce in Q4 2025, citing macroeconomic factors and investor sentiment.
While short-term fluctuations are inevitable, the consensus suggests that gold prices will likely remain elevated unless geopolitical tensions ease and economic stability returns.
The ascent of gold prices is a complex interplay of global and domestic factors. For India, the implications are profound, affecting trade balances, consumer behaviour, and investment patterns. As uncertainties persist, gold's allure as a safe-haven asset endures, making its trajectory a focal point for policymakers, investors, and consumers alike.
Gold prices are rising due to a mix of factors rather than a single cause. Key drivers include persistent inflation concerns, expectations of interest rate cuts by central banks (which boost gold's appeal), heightened geopolitical tensions increasing safe-haven demand, sustained central bank gold purchases, and fluctuations in the US Dollar's strength.
While global factors set the base price, the price increase in India is often amplified by the USD/INR exchange rate (a weaker Rupee makes imported gold more expensive), government import duties and taxes, and strong local demand, especially during festive and wedding seasons.
Historically, gold has often been considered a hedge against inflation. During periods when the purchasing power of currency declines, investors tend to move towards gold to preserve value. However, its effectiveness can vary depending on the economic environment and other competing factors.
Gold prices generally have an inverse relationship with real interest rates. When real interest rates (interest rates minus inflation) are low or negative, non-yielding gold becomes more appealing compared to interest-bearing assets like bonds, potentially driving its price up. Conversely, high real interest rates can make gold less attractive.
Predicting future gold prices is inherently difficult. Whether prices continue to rise depends on how current global economic factors (inflation, interest rates), geopolitical situations, central bank policies, and investment demand evolve. It's best to follow expert analysis and understand the underlying drivers.
Daily gold price movements reflect immediate market reactions to economic data releases (like inflation reports or jobs numbers), changes in geopolitical news, significant shifts in investor sentiment, large buy/sell orders, or fluctuations in the US Dollar. It's the short-term manifestation of the broader trends.
A 'safe-haven asset' is an investment expected to retain or increase its value during times of market turbulence and economic uncertainty. Gold is often considered a primary safe-haven asset because investors flock to it when riskier assets (like stocks) are perceived as dangerous, seeking stability and wealth preservation.
Gold's price increase per year varies significantly. While it has shown long-term appreciation, there can be periods of flat or even declining prices. Calculating a single "average" can be misleading. It's better to look at performance over specific timeframes (e.g., 5, 10, 20 years) while remembering that past performance does not guarantee future returns.
Generally, yes, increased demand tends to push prices higher, especially if supply remains constant or doesn't increase proportionally. This demand can come from investors, central banks, jewellery consumers, or industrial applications. However, the price is set by the complex interaction of global supply and demand forces.
It's typically a mix of both. Fundamental economic factors like inflation and interest rates provide a base rationale. However, market sentiment, often driven by fear (geopolitical risks, recession worries), can significantly amplify price movements, leading to sharp hikes as investors seek safety in gold.
