Domestic gold prices hit a historic high at Rs 95,000 per 10 grams on the MCX, a lifetime high, on April 16, gaining by more than 25 percent over the last six weeks. Gold is currently trading above $3,300 per ounce, gaining around 40 percent in the last one year. Amidst volatility in the equity market, gold continues to race ahead. According to experts, there are four main reasons driving gold prices.
Central bank's gold buying continues
A primary driver according to experts for gold's rally is buying by central banks. According to a Tata AMC report, this demand is particularly from emerging markets like China, India, and Turkey which have lower reserves than other larger developed economies like US, Germany and France. The report adds that central bank buying in 2025 is projected to average 100 tons per month, reinforcing the price floor and signalling strong institutional demand. Central banks, notably in Asia, the report explains, have increased their gold purchases in response to escalating geopolitical tensions. This buying is expected to continue providing support to gold prices going forward, the report notes.
Gold as a safe haven amidst economic and geopolitical uncertainty
A main concern and reason for driving gold prices has been the challenging global macroeconomic backdrop. Amidst rising recession fears, sluggish growth, and persistent trade tensions, investors tend to look for safe-haven assets like gold.
Weakening dollar index
Another reason according to experts is the weakening of the US Dollar Index (DXY) has weakened through early 2025, which directly benefits gold since it is priced in dollars. "A weaker dollar makes gold cheaper for foreign buyers, driving global demand," the Tata AMC report added noting that the decline could be partly attributed to the Trump administration's policy favouring a weaker dollar and increased tariffs. The Index is currently trading at 99.56.
Concerns on inflation
Global concerns on inflation in 2025 on the back of various factors such as tariffs, a weaker dollar, and supply constraints has also been a driver. Experts note that gold acts as a hedge against rising inflation.
As a result of the rising prices, the report notes that gold ETFs are gaining traction amongst investors. A UBS projection expects that inflows will reach 450 metric tons in 2025 driven by institutional and retail investors alike seeking exposure to an alternative and more stable asset.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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