Why is the gold price increasing? 5 key Reasons Explain
Current Gold Prices: In the domestic market, 24K gold was 95,170 per 10 grams, while 22K gold was worth 87,190 per 10 grams. Everyone wants to know if gold will hit one lakh. Due to a combination of international political and economic forces, gold prices are rising to all-time highs. The top five causes of the surge are examined in this article: a declining value of the US dollar, active gold purchases by central banks, concerns about an impending US recession, an increase in investor inflows into gold exchange-traded funds (ETFs), and heightened geopolitical tensions. Let's examine the reasons behind the increase in gold prices in more detail.
Gold prices continue their record-breaking rally. with spot rates climbing to an all-time high of $3,300 per ounce. Domestically, MCX gold futures surged to a historic high of 95,000 per 10 grams, reflecting the strength of the global uptrend. 24k gold traded at 95,170 per gram, while 22k gold stood at 87,190 per 10 grams in the domestic market.
In a major update, Goldman Sachs has increased its prediction for the price of gold to $3,700 an ounce by the end of 2025, pointing to strong central bank purchases and investor demand. The investment bank also identified a high-risk scenario in which, in the event that global macroeconomic conditions drastically change, gold prices might reach $4,500 an ounce.
Gold is solidifying its standing as a favored safe-haven asset as geopolitical threats increase and economic indicators continue to fluctuate. A detailed look at the five main causes of the recent spike in gold prices is provided below.
Why Are Gold Prices Rising? 5 Key Drivers Behind the Surge
A stronger dollar, a strong central bank amping gold reserves, higher inflows into gold-backed Exchange-Traded Funds (ETFs), increased global economic uncertainty, US-China trade tensions, and growing recession concerns all contributed to this week's spike in gold prices to new all-time highs.
1. Weakened U.S. Dollar Boosts Gold Demand
Recent declines in the value of the US dollar have contributed to gold's recent surge by increasing the metal's appeal to investors around the world. The crucial 100 barrier was breached by the U.S. dollar index (DXY), which compares the U.S. dollar to a basket of major currencies. A drop in the value of the US dollar in relation to other world currencies is referred to as a "weak dollar."
This drop coincides with growing concerns about a U.S. recession and more market turbulence after the Trump administration's strong trade policies. Notably, Beijing retaliated immediately after taxes on a number of Chinese imports were raised to 125%. Investor confidence has been shaken by these trade disputes, which has caused them to turn to safe-haven assets like gold.
Impact on gold prices in India
In India, where almost 85% of gold is imported, changes in the value of the US dollar have a big impact on the gold rate.
The dollar and gold have an inversely proportional relationship:
- Domestic gold prices rise when the dollar depreciates because foreign gold becomes more costly in rupees.
- In India, gold prices often decline when the dollar appreciates.
2. Central Banks Increase Gold Stockpiles
Several central banks, especially those in Asia, have been increasing their gold holdings in response to the dollar's volatility. For the third year in a row, central banks added more than 1,000 tons of gold, according to the World Gold Council (WGC). Central banks were net purchasers of 1,037 tonnes of gold in 2024, one of the best years on record, according to the WGC's most recent Gold Demand Trends report.
This aggressive accumulation reflects efforts by countries to diversify away from the U.S. dollar, enhance financial stability, and hedge against rising geopolitical and economic risks. This trend reflects growing concerns over a potential U.S. recession.
India's RBI Is One of the Top 3 Purchasers
Adding 72.6 tonnes of gold to its reserves in 2024, the Reserve Bank of India (RBI) made significant moves in the metal market. In terms of net gold purchases for the year, this put India behind only Poland and Turkey. The RBI's ongoing emphasis on diversifying its foreign exchange reserves is reflected in India's current total gold holdings of over 800 tonnes.
What Motivates Central Banks to Purchase Gold? In the face of global economic uncertainty, central banks' massive purchases of gold limit supply, diversify away from the US currency, protect against inflation, and bolster reserve stability.
3. Looming Fear of US Recession
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The Federal Reserve's recent interest rate reduction and growing worries about a possible U.S. recession have caused gold prices to soar. (Note: Gold shines as interest rates drop.). Goldman Sachs has increased the likelihood of a U.S. recession to 45% in the upcoming year, citing ongoing trade tensions and economic uncertainties. Further evidence that even U.S. bonds might no longer be a safe haven for investors comes from the rising selling of U.S. Treasuries. Investors go to gold as an alternative when bond yields rise, which increases demand and, in turn, gold prices.
4. Increased ETF Inflows
Amid rising geopolitical tensions and escalating gold prices, investors are flocking to gold ETFs. According to a report by ICRA Analytics, inflows into ETFs surged by 98.54% year-on-year, reaching 1,979.84 crore in February 2025, up from 997.21 crore in the same period last year. Investors are increasingly turning to gold ETFs because they offer liquidity, transparency, cost-effectiveness, and ease of trading compared to physical gold.
5. Economic Uncertainty and Geopolitical Tensions
With Chinese commodities subject to 145% taxes and American goods subject to 125% duties, the trade war between the two countries has intensified. Global economic instability is being further exacerbated by this trade dispute as well as more general geopolitical issues, ranging from the Middle East to Eastern Europe.
Investors turn to gold as a haven as tensions increase and worries about a worldwide recession grow. Gold has historically been seen as a safe-haven commodity during periods of political upheaval and economic uncertainty, protecting wealth against possible market declines, inflation, and currency depreciation. The already high demand for gold is being fueled by this increased uncertainty, which is driving prices higher.
Conclusion
In conclusion, a number of important variables contributed to the spike in gold prices, including a declining value of the US dollar, rising central bank gold holdings, growing concerns about a U.S. recession, large ETF inflows, and escalating geopolitical tensions. These elements have strengthened gold's standing as a safe-haven asset because of the ongoing uncertainty surrounding the global economy. Investors are using gold as a hedge against the risks associated with protecting their money from possible market volatility. Given these variables, it is anticipated that demand and the overall macroeconomic climate will continue to fuel gold's advance.
