Gold prices cool from record high, but is the rally just getting started?

The Hindu

23-04-2025

Gold prices saw a sharp correction on Wednesday after touching record highs a day earlier, but analysts say the yellow metal is likely to stay strong in 2025 amid global uncertainty and sustained demand from central banks.
After breaching record highs on Tuesday, gold price fell by ₹1,358, or 1.40% at ₹95,982.00 per 10 grams on the Multi Commodity Exchange of India (MCX) on April 23, 2025.
On Tuesday, the MCX Gold rate for June contract hit a record high of ₹99,358 per 10 grams. However, easing trade war tensions triggered profit booking, dragging the yellow metal down by ₹3,900 to ₹95,457 per 10 grams in intraday trade on Wednesday.
The prices fell in the international market too, as U.S. President Donald Trump expressed optimism for a trade deal with China, Reuters reported. Spot gold prices fell 0.7% to $3,357.11 an ounce, while U.S. gold futures dropped 1.5% to $3,366.80.
Gold, a safe-haven asset, has been on a record-breaking spree in 2025, delivering a gain of over 28% so far this year. Over the last year, gold has gained 45%.
'Investors often flock to safe assets like gold when geopolitical tensions and economic uncertainties rise,' Ajit Mishra, SVP - Research, Religare Broking, told The Hindu. Analysts believe that a combination of factors, like geopolitical tensions, economic uncertainties, and market volatility, has led to the steep increase in the price of gold.
Impact of Trump's tariffs
On April 2, 2025, U.S. President Donald Trump announced a new policy to impose reciprocal tariffs against countries that charged high tariffs and imposed barriers that made products made in the U.S. more expensive. These tariffs are an essential part of Mr. Trump's plan to reduce the country's trade deficit with other countries and increase domestic manufacturing. However, the tariffs spooked investors and sent markets around the world tumbling.
Even though the U.S. administration announced a 90-day pause on Mr. Trump's 'Liberation Day' tariffs, the fears of a potential trade war remain.
This has prompted investors to seek a safer bet and seek out the yellow metal. 'Ongoing trade wars, particularly between the U.S. and China, and political instability have heightened market volatility. These factors have led investors to seek safe-haven assets like gold,' Mr. Mishra said. 'These trade disputes have not only strained diplomatic relations but also disrupted supply chains and created a more uncertain outlook for global growth. As a result, Trump's tariff-driven trade policies have contributed significantly to the surge,' he added.
Manav Modi, Senior Analyst, Commodity Research at Motilal Oswal Financial Services, believes that the fear of a slowdown of the U.S. economy is also adding to the surge. 'This sharp escalation in tariffs is raising concerns about a potential slowdown in U.S. economic growth and increasing inflation expectations,' he said.
Central banks go on a buying spree
Other geopolitical tensions, like the Russia-Ukraine war and the Israel-Hamas war in West Asia, the unabated rise of U.S. dollar and record-high interest rates in advanced economies prompted central banks around the world to increase their gold reserves over the years.
Central banks have purchased 1,082 tonnes of gold in 2022, 1,037 tonnes in 2023, and 1,045 tonnes in 2024. According to the World Gold Council, central banks globally added a net 44 tonnes of gold to their reserves in January and February 2025.
'The buying spree is often linked to geopolitical instability and fears of economic slowdown. As tensions rise, central banks turn to gold to hedge against risks like inflation, currency devaluation, and financial crises, all of which boost its price,' Mr. Mishra explained.
'Central banks, including those in emerging markets, have been net buyers of gold for over a decade,' Mr. Modi said, adding that these banks collectively purchased gold to diversify their reserves.
This demand from central banks has added to the surge. The buying activity from central banks has also enhanced the overall confidence in gold as a safe-haven asset, Mr. Modi said.
'When central banks buy large quantities of gold, it signals increased demand for the metal, which directly impacts its price. The more central banks hold in reserves, the tighter the supply becomes, leading to upward pressure on prices,' Mr. Mishra explained.
Expect prices to surge
Gold has seen a rally for nearly a decade now. 'The rally from 2015 to 2020, during which gold surged by more than 80%, was fueled by low interest rates, inflation concerns, and global uncertainties such as trade wars and the COVID-19 pandemic,' Mr. Modi said, adding that momentum slowed in 2021, but the rally picked up pace later and would continue this year.
'Gold prices are expected to continue their upward trajectory due to rising geopolitical tensions and economic uncertainties. The ongoing tit-for-tat trade tariffs between the U.S. and China are likely to persist, with no resolution in sight until the U.S. sees a significant improvement in its trade deficit,' Mr. Mishra said.
'We could continue to see volatility for gold this year. Risky traders can continue to ride this rally; however, safe traders can wait for a dip to accumulate,' Mr. Modi said. He added that on the domestic front, the immediate range is near ₹96,500- 1,00,000. 'On a longer term perspective, ₹1,06,000 could be possible,' he noted.
The higher prices might slow demand in India, especially in the retail segment where consumers often buy gold, often in small quantities, for personal use. 'Gold prices have touched the psychological mark of ₹1 lakh per 10 grams at the retail level, and this is likely to hurt demand ahead of Akshaya Tritiya. Soaring gold prices will make jewellery less affordable to the end users. Indian consumers are highly price-sensitive when it comes to gold purchases. While demand for gold jewellery may decline, gold as an investment may still see strong demand,' Mr. Mishra said.
He noted that the demand for gold ETFs and digital gold is on the rise as investors, both retail and institutional alike, are 'turning to gold-backed financial products to preserve capital and reduce portfolio risk.'