Gold remains the sole shining star for investors in 2025. While equity market investors are staring at losses in their stock portfolio, the investors in gold are on a high. Gold is up over 40% in the last 12 months, with a 10% gain in 2025 itself.
So, what’s driving the gold prices higher? Is it Trump or geo-politics or just the demand that suddenly shot up for the yellow metal?
Remember, on average, 3,000 tonnes of gold are mined every year. This means, the world is gobbling such a big volume each year! More on this later in today’s column.
For now, let’s go back to why the price of gold is rising.
Putting a finger on one factor may not be right as the gold price is a function of the dynamics between factors like inflation, interest rates, the dollar, geo-politics, trade wars, amongst others. No wonder it is called the abode of safe-havens in times of uncertainty.
Let’s look at some of the key reasons.
First, in the recent run-up of gold prices, the initial impetus came from the US Fed. US inflation peaked at 9.1% in June 2022 and then it started falling.
From March 2022 till July 2023, the US Fed kept hiking rates to tackle inflation. Thereafter, the US Fed kept rates unchanged till September 2024 without resorting to any rate cuts.
But markets knew a spree of rate-cuts are in the offing, making gold an attractive asset compared to the dollar. In anticipation, gold started to rise sooner in February 2024.
What it shows is there are savvy investors out there, waiting to catch the trend early on. In a higher or rising interest rate environment, gold is not a preferred asset class, but when rates fall, it becomes an attractive asset relative to the dollar.
US Fed has already cut rates by 100bps (that’s 1%) but has maintained status quo in the last FOMC meeting. Going forward, Fed chief Powell has stated that they are not in a hurry to cut rates till inflation remains sticky. But rate cuts are imminent so gold price is holding ground around $2,900.
Second, the other big source of demand for gold was from central banks, which are known to keep billions of dollars as gold reserves.
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