Gold breaches Rs 1 lakh mark: What's driving the surge, should you buy now?

Business Standard

22-04-2025

In a continuation of its rally, gold prices surged by Rs 1,899 today, marking the fourth consecutive day of gains and pushing the yellow metal to a historic high of Rs 99,178 per 10 grams. On the Multi Commodity Exchange (MCX), the October futures contract briefly breached the Rs 1 lakh mark, touching an all-time high of Rs 1,00,484 per 10 grams, up nearly Rs 2,000 or 2%.
The sharp rally is being attributed to safe-haven demand, fueled by geopolitical uncertainty, central bank gold buying, and criticism of the U.S. Federal Reserve by President Donald Trump — developments that have collectively unnerved global markets.
'Gold has surged more than 30% this year as trade tensions have caused jitters in the markets boosting the demand for safe haven assets except for the Dollar Index which has plunged by more than 4 percent this year. Strong flows to bullion-backed exchange-traded funds and continued purchases by central banks have also supported the trend," said Prathamesh Mallya, DVP- Research, Non-Agri Commodities and Currencies, Angel One.
In the midst of gold's meteoric rise, Uday Kotak, founder of Kotak Mahindra Bank, took to social media platform X (formerly Twitter) to praise Indian housewives for their enduring trust in gold.
The Indian housewife is the "smartest fund manager in the world", he said in a post on X, adding that governments and economists pushing high deficit spending might learn a thing or two from India, "a net importer of store of value forever!" Kotak's remark came as gold hit Rs 99,170 per 10 grams in India at 10:53 a.m., according to the India Bullion Association.
"While the gold price is on an upward trajectory, the fall in USD will make gold affordable in other currencies, keeping the demand-price dynamics balanced. As the global economic development unfurls, we project the gold price to breach the USD 4,000/Oz in the international market during FY26.
Domestically, it is observed that gold price witnesses a slight rise around festive season like Akshaya Tritiya, in reflection to the spike in demand. The sentimental and cultural value attached towards investing in yellow metal on auspicious occasions like this will keep the demand upbeat, irrespective of the price trend," said Colin Shah, MD, Kama Jewelry.
Why is gold soaring?
Geopolitical Tensions and Trade Conflicts
Escalating trade tensions, particularly between the US and China, have heightened market volatility. For instance, President Trump's imposition of tariffs on Chinese goods and his criticisms of Federal Reserve Chair Jerome Powell have unsettled investors. These actions have led to a weakened U.S. dollar and increased demand for gold as a safe-haven asset .​
Federal Reserve's Monetary Policy and Interest Rate Cuts
The Federal Reserve's decision to cut interest rates has made non-yielding assets like gold more attractive. Lower interest rates reduce the opportunity cost of holding gold, leading to increased investments in the precious metal.
Central Banks' Gold Purchases
Central banks worldwide, including those of India and China, have been increasing their gold reserves. This trend, known as "de-dollarization," reflects a strategic move to diversify foreign exchange reserves and hedge against economic uncertainties.
" In 2024, global central bank gold purchases exceeded 1,000 tonnes for the third consecutive year (as per market data). Notably, China's policy shift allowing insurers to allocate up to 1 per cent of assets to gold could add approximately 255 tonnes to annual demand," said Value Research in a note.
"The freezing of Russian central bank assets made countries realise that dollar reserves carry political risk. In response, central banks have ramped up gold buying. This isn't mere speculation—it points to deeper shifts in the global monetary system," said Dhirendra Kumar of Value Research.
So, should you buy now?
With rising market volatility and global uncertainties, many investors are asking: Should you rush to convert your savings into gold bars? Tempting as it may be to chase gold after its recent run-up, it's important to pause and think about its role in your portfolio.
Gold isn't a growth asset. It doesn't generate income like dividends or interest. It simply sits there, looking shiny and occasionally appreciating. That's why Dhirendra Kumar consistently refers to gold as a hedge, not an investment.
"It's best used to protect your portfolio during uncertain times, not to power its returns.
So, consider gold only if you're underexposed. For most investors, an allocation of 5-10 per cent of the total portfolio is more than enough. That's just enough to add a layer of safety, without dragging down overall returns," said Kumar.
What's the best way to invest in gold?
If you're convinced about adding gold, Value Research says it is best to avoid physical gold for investment; it's better suited for cultural or decorative use. Investment-wise, it's inefficient and prone to extra charges.
Sovereign gold bonds (SGBs) are the most efficient option, offering 2.5 per cent annual interest over and above appreciation and tax-free maturity gains.
Gold ETFs or mutual funds are next in line, but they come with some costs.
"Yet dismissing gold entirely may no longer be the correct position it once seemed. A modest allocation - perhaps 5-10 per cent of your investment portfolio - might be a reasonable hedge against currency debasement and geopolitical instability. Think of it as insurance rather than a growth investment. If you decide to include gold in your portfolio, consider whether physical gold (coins, bars), gold ETFs, sovereign gold bonds, or gold mutual funds best suit your needs. Each has distinct advantages and disadvantages regarding liquidity, costs, and security," said Kumar.