When will the rally in gold prices stop?

Gold prices are on a rally once again. Just in October 2024, gold price touched $2,700 per ounce. 1 year later, today, it is above $4000 per ounce. Two days ago, gold price crossed the $4000 level for the first time ever. Its price has risen by more than 50% in 2025. Gold ETFs in India have risen by around 58%, year-to-date in 2025. Nifty 50 index has risen by only 5.9% in this period.

The rise and rise and rise of Gold

Price of gold rises in times of risk and uncertainty. The metal is considered to be a hedge against inflation and other risks. That explains its price rise over the past 3 years to a large degree. Geopolitical risk shot up with Russia invading Ukraine back in 2022. That war is still continuing. Then the Israel – Hamas conflict began in October 2023. Oil tankers and cargo ships started getting shot at as the conflict in Middle East spread. Then in 2025, President Trump took over as US President. Economic risk increased after that as President Trump put protectionist measures in place. High import tariffs in US were imposed on goods from other countries.

In May this year, a three-day armed conflict between India and Pakistan also contributed significantly to increasing geopolitical risk and risk in India. Add to this the high inflation scenario that prevailed in many countries after the Covid lockdowns. Many investors increased buying of gold as inflation increased in many places.

Sharp increase in demand of gold by central banks

One very big contributor to the rise in gold prices globally is the increased demand for the metal from central banks. Central banks are increasingly holding their reserves in the form of gold. According to data from The Economist and World Gold Council, in 2008 around 6% of the reserves that central banks held was in the form of gold. The rest was in the form of other securities such as US Treasury bonds. Today the share of gold in central bank reserves has risen to over 11%.

Family offices also tend to invest more in gold as a safe haven asset in comparison to other asset managers. A family office manages the wealth of some particular wealthy family. This has also increased the demand of gold among institutional and wealthy investors.

Historic relationship between gold prices and inflation

Historically, gold prices and inflation have a negative correlation most of the time. When interest rate rises, gold prices tend to go down. When interest rate falls, gold prices tend to go up. But in the past two years, this correlation has weakened and is not holding up all the time. Gold prices continued to rise even in periods when central banks increased interest rate after 2022.

One reason for the current rally in gold prices is that US Federal reserve is expected to cut down interest rate in its next monetary policy meeting. With the US Federal Reserve cutting down interest rate, other central banks may also follow suit.

So when will the rally in gold prices end?

The answer is that gold prices will stop increasing, and may even start declining, when the current environment of geopolitical and economic uncertainty improves. Israel and Hamas agreed to a ceasefire last evening. Gold price today is down by around 0.27%, trading at Rs 4,030 per ounce. If a ceasefire between Russia and Ukraine is reached soon, then gold prices may see some significant decline. Currently, reports of increased drone incursions by Russia in other EU countries has increased the risk of the war in Ukraine spreading to the rest of Europe. This has also caused the spurt in price of gold.

If the political and uncertainty caused by some of the policies of President Trump continues in America, then gold price may go up further. Higher tariffs in US has significantly increased the risk of inflation shooting up there. This may also cause gold price to go up further.

Domestically, the Diwali season has kicked off. This will be followed by the November wedding season. Gold price locally is likely to remain strong in this period.  The supply of gold is limited. The reasons for increase in its demand are many.

Disclaimer : This content is only for informational purpose. It does not make any recommendation to act or invest.

Source: NSE; World Gold Council etc.