Gold prices in the international market reached an all-time high of $3,673.95—an increase of 38 per cent this year—on 9 September. Due to strong investment demand, Australian lender ANZ Group has raised its gold price forecast to $3,800 an ounce by the end of this year. It expects prices to reach close to $4,000 by June 2026.
A weak dollar, strong gold purchases by central banks, soft monetary stance and growing global uncertainty have fuelled rising gold prices. The central bank’s gold purchases are estimated to be between 900 metric tonnes and 950 metric tonnes in 2025, meaning purchases of 485 metric tonnes to 500 metric tonnes are expected in the second half of this year.
China’s central bank increased its gold reserves significantly in August, leading to continued bullion purchases. The US Federal Reserve may continue its dovish stance until March 2026 due to rising labour market risks. This will put pressure on US Treasury yields, which may further spur gold buying. Australia and New Zealand Banking Group (ANZ) has also raised its year-end silver price target to $44.7 an ounce, citing gold’s rally and strong Exchange-Traded Fund (ETF) inflows.
History of yellow metal prices
The price of gold was $430 an ounce in 1988, which rose to $1,195 an ounce by September 2018, i.e. an annual increase of 3.43 per cent in 30 years. But in the last seven years, the price of gold has increased around 17.5 per cent per annum to reach $3,654 this year. Economic analysts around the world are pointing to significant changes in global monetary and financial conditions behind the surge in gold prices.
There is an emotional connection with gold in India, which is perhaps not found in many countries, and this is what makes people curious about why there has been such a sudden surge in gold prices. People, especially women, take pride in keeping their savings in the form of gold. It is estimated that out of the total known gold in the world, which is 1,87,000 metric tonnes, about 25,000 metric tonnes is found in India—a result of the yellow metal historically held in Indian households and its purchase from the rest of the world over time.
India’s central bank, the Reserve Bank of India (RBI), has 876 metric tonnes of gold as of 31 December 2024, which is now the eighth largest reserve in the world. It is worth mentioning that in December 2023, India’s gold reserves were the ninth largest in the world. However, with the purchase of 73 metric tonnes of gold in a year, India’s gold reserves jumped up to the eighth spot.
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Aversion to dollar means love for gold
The countries of the world, especially the developing ones, have suffered huge losses due to the continuous strengthening of the dollar in the last few decades. India is also no exception in this case. Recently, the Indian government has made significant efforts to increase the role of the rupee in international payments. In this regard, arrangements have been made with around 20 countries for international payment settlement in rupees.
On the other hand, due to the turmoil, and especially the sanctions imposed on Russia by the US as well as European countries and the difficulty in international transactions, there has been a significant increase in efforts to make payments in local currencies. All these are being considered as an integral part of the overall dollar-liberation in the world. The aversion of the governments and central banks of the countries towards the dollar has led to an unprecedented increase in the demand for gold.
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Future prospects
Although there has been an unprecedented rise in gold prices recently, this increase may continue in the future or its pace may accelerate further. Many reasons are being given for continued rise in gold prices.
First, the cheap or easy money policy of the Federal Reserve (the USA’s central bank) is considered to be the biggest reason for this. The US Federal Reserve has been adopting a stance of reducing interest rates for some time to encourage economic activities, pushing the yield in the US Treasury to remain low. Hence, there is a possibility of increased attractiveness of gold.
Apart from this, low interest rates reduce the opportunity cost of gold. When interest rates are high, investors prefer bonds or deposits because they provide safe returns. But, when rates are low, the opportunity cost of holding gold is reduced, making it more attractive. Also, easy monetary policy often causes a fall in the value of the US dollar, as it will be more in circulation. Internationally, the price of gold is fixed in dollars. A weak dollar makes gold cheaper for foreign buyers, increasing demand. Easy monetary policy increases the money supply and can lead to inflation over time. Gold is seen as a preferred store of value and a hedge against inflation. Investors buy it to protect their assets.
Second, due to rising geopolitical tensions, gold is being considered the safest investment. Historically, whenever there is a situation of war and conflict, many countries and people tend to invest in gold. Here, the war between Russia and Ukraine continues as usual, and Israel’s conflict with Islamic countries is not stopping. In such a situation, gold is being considered the safest asset.
Third, till now, the dollar has been was the most recognised reserve currency in the world. In the last few years, the importance of the dollar in the reserve has started to. Meanwhile, when the US almost seized Russia’s foreign exchange reserves during the Ukraine-Russia war, the trust of countries in America has started to break. Perhaps this is the reason that central banks around the world want to keep more and more reserves in gold now instead of dollars. Therefore, there has been an unprecedented increase in the purchase of gold by the central banks, and the trend is constantly on the rise.
It is worth noting that according to the International Monetary Fund (IMF), the share of the dollar in the form of global reserves has reached 62 percent in 2010, 59 percent in 2020 and 57.74 percent in 2025.
Fourth, inflation and currency devaluation are also causing more demand for gold. When inflation rises, the real value of paper currency falls. Gold, being a tangible asset with limited supply, helps in protecting wealth.
Fifth, the most important reason is the tariff war. Due to the imposition of tariffs by US President Donald Trump on the world, there is confusion in the foreign trade sector. This confusion is also increasing the demand and prices of gold. It is worth noting that after President Donald Trump took office, the price of gold has increased from $2,696 per ounce to $3,673 per ounce (i.e. 36.2 percent).
It can be understood that due to geopolitical tensions, foreign trade wars and economic turmoil and the continuous decline in the strength of the dollar, the demand for gold is not going to stop anytime in the near future.
Ashwani Mahajan is a professor at PGDAV College, University of Delhi. He tweets @ashwani_mahajan. Views are personal.
(Edited by Saptak Datta)