Why do global and domestic prices rise without correction?
The current rally in gold is driven by a perfect storm of macroeconomic and geopolitical factors. Investors are flocking to gold as a safe haven, amid increasing global uncertainty. The lack of any meaningful correction is largely due to:
- Ongoing geopolitical tensions
- Weakening of the US dollar
- Strong retail and institutional demand
- High purchases by central banks
- Limitations in the offer
In India, the festive and wedding season has further increased demand, pushing up prices despite the global rally.
Why has the ceasefire between Israel and Hamas had no impact?
Despite a ceasefire between Israel and Hamas, gold prices remain high. This is because the ceasefire is expected to be fragile and temporary, with risks of renewed conflict. Broader tensions in the Middle East, including Iran’s involvement and regional instability, continue to fuel risk aversion. Investors are considering long-term geopolitical uncertainty, not just short-term peace deals.
So gold continues to act as a hedge against geopolitical shocks, even as workarounds emerge.
Why are people so resilient to gold?
Gold’s resilience comes from its historical role as a store of value. In uncertain times, investors prefer assets that can preserve their wealth during inflation or currency devaluation. Furthermore, they rely on assets that are globally recognized, liquid and provide psychological comfort in volatile markets.
In India, cultural affinity and seasonal purchasing further enhance gold’s appeal.
Central banks are also increasing gold purchases and diversifying away from dollar-denominated assets due to increased risk aversion and growing concerns about US governance and the stance of monetary policy.
Weak US dollar and closing of US government bonds
The US dollar index has weakened significantly in recent months due to anticipation of interest rate cuts by the US Federal Reserve, slowing US economic growth and rising budget deficits and debt concerns. The continued tightening of US Treasuries has also increased global economic uncertainty, causing investors to turn to safe havens like gold.
A weaker dollar makes gold more attractive to international buyers, driving up demand and prices. Historically, gold and the dollar share an inverse relationship, and this trend will strongly manifest itself in 2025.
Impact of new tariffs on China
The recent imposition of new tariffs on Chinese goods by the US has thrown global trade into turmoil. This has several consequences for gold. This could increase trade tensions, sending investors looking for safe assets. It could also lead to slower global growth, further increasing gold’s appeal. China, a major gold consumer and importer, could further diversify reserves into gold to hedge against trade-related risks. So the trade war story adds another layer of support to gold’s bullish momentum.
Are the fundamentals still positive for gold?
Yes, fundamentals remain strongly supportive. Geopolitical instability in the Middle East and Eastern Europe, trade concerns with China, a weakening dollar and potential Fed rate cuts, and investors’ shift to safe haven assets amid volatile stock markets are collectively creating a favorable environment for gold, both as a hedge and as an investment.
Is a price correction possible? What could cause this?
Although the rally seems unstoppable, a correction is always possible. Possible triggers include:
- Stabilization of geopolitical tensions.
- Rise in the US dollar, possibly due to unexpected policy changes from the Fed.
- Profit booking by investors after such a steep rise.
- Improved global economic prospects, reducing the need for safe haven assets.
- Government interventions, such as import restrictions or higher taxes on gold.
If any of these factors materialize, gold could see a near-term pullback, although the long-term outlook remains constructive.
Gold’s meteoric rise in 2025 reflects global unrest, economic fragility and investor caution. While fundamentals remain supportive, the possibility of a correction cannot be ruled out. For now, gold continues to shine – both as a cultural symbol and as a financial fortress.
(The author of their article, Hareesh V, is Head of Commodity Research, Geojit Investments.)
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