Global uncertainty caused by either war or extreme policies—such as those affecting crude oil prices or tariffs—generally leads to excess volatility across all markets. With numerous developments unfolding in the current context, it is difficult to predict whether currencies will weaken or strengthen. Similarly, bond markets remain in flux as central banks carefully evaluate the situation before deciding on interest rates. Stock markets also experience heightened volatility and can change direction daily based on sentiment.
### Gold: A Safe Haven Amidst Market Chaos
Interestingly, over the last two years, one asset that has consistently moved in a single direction and thrived amid this chaos is gold. This trend has been evident since the onset of the COVID-19 pandemic, with gold gaining strength for various reasons.
From an average price of $1462 per ounce in 2019-20, gold has surged to $2585 per ounce in 2024-25—an increase of around 76% over five years. More notably, in 2025, due to tariff issues, the price of gold rose substantially from $2709 per ounce in January to $3532 per ounce in the first week of September, marking a 30% increase. This rise occurred even as stocks remained volatile, bond yields increased, and currencies showed no clear trend.
### Explaining Gold’s Rise
How can this be explained? And can this trend be expected to continue?
**1. Gold as a Safe Haven**
Gold is traditionally viewed as a safe haven asset that performs well during periods of uncertainty. The last five years have seen several episodes of turmoil—including the pandemic, geopolitical conflicts, political shifts, and recent tariff tensions—prompting investors to diversify portfolios by adding gold. Furthermore, investment in gold has become more accessible through financial instruments, such as futures and ETFs, diminishing the need to buy physical gold. Both overseas and Indian derivative markets have reflected this momentum, influencing physical gold prices.
**2. Growth in Gold ETFs**
Gold exchange-traded funds (ETFs) have gained significant traction as large institutional investors pour funds into these vehicles. Since ETFs maintain physical gold reserves to back investor holdings, increased inflows into these funds have driven demand for the metal, contributing to its rising price. This institutional demand has been a major driving force over the past five years, unlike in earlier periods.
**3. Central Banks’ Strategic Purchases**
Central banks have also emerged as major buyers of gold. Since the Ukraine war began, there has been considerable discussion around de-dollarization, leading central banks to increase gold reserves as a diversification strategy. Unlike fiat currencies, gold is not tied to any nation, making it an attractive asset to balance foreign exchange reserves. Notable buyers have included the central banks of India, China, Turkey, the Czech Republic, Poland, and others. These large-scale acquisitions have further boosted gold’s price momentum.
**4. Individual Consumer Demand**
At the individual level, a rising gold price often creates a self-fulfilling cycle. Households rush to purchase gold jewelry to “beat the cycle,” increasing demand and pushing prices higher. India and China remain the world’s largest consumers of gold. Lower interest rates in India have made gold even more appealing as a long-term investment. Although physical gold purchases slowed during the initial pandemic lockdowns, pent-up demand soon resulted in a surge in buying, supporting further price gains.
### What Lies Ahead for Gold Prices?
Looking forward, how will gold prices evolve?
The last five years have shown impressive gains, but historical patterns suggest that gold prices do not always rise steadily. For instance, between approximately 2007 and 2015, the compound annual growth rate (CAGR) over a decade was in double digits annually, boosted by the aftermath of the Lehman crisis. However, during the interim years, gold prices were volatile without significant directional movement.
In the past decade, gold experienced four years of high double-digit growth, but also three years of negative returns. This history indicates that annual price increases should not be taken as guaranteed.
Given that global volatility is likely to persist over the next year—due to shifting dynamics in global trade and currency realignments—predicting gold’s trajectory beyond that remains challenging. At current levels around $3500 per ounce, a sharp price surge seems unlikely without a major global shock.
Despite this, gold is expected to continue providing solid, steady returns over the long term, although annual gains may be more moderate. Key factors influencing future prices include investor sentiment toward ETFs and other investment vehicles, as well as the continued, gradual accumulation of gold reserves by central banks over the coming years.
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*The author is Chief Economist at Bank of Baroda and the writer of ‘Corporate Quirks: The Darker Side of the Sun’. The views expressed here are personal.*
https://www.freepressjournal.in/analysis/cant-bet-on-gold-to-continue-to-rise-at-the-same-pace
