Gold prices in India have been experiencing a significant surge, reaching record levels in early February 2025. As of February 6, 2025, the price of 24-carat gold in Delhi is ₹86,423 per 10 grams, reflecting a substantial increase from ₹84,213 just a day earlier.
Several factors contribute to this upward trend:
1. Global Economic Uncertainty
Ongoing global economic instability, driven by trade tensions and geopolitical conflicts, has led investors to seek refuge in safe-haven assets like gold. Recent developments, such as the U.S. imposing tariffs on countries including Canada, Mexico, and China, have heightened these uncertainties, prompting retaliatory measures and fueling concerns over global economic growth.
2. Central Bank Purchases
Central banks worldwide have been significantly increasing their gold reserves. For instance, in 2024, central banks collectively purchased over 1,000 tonnes of gold for the third consecutive year, with nations such as Poland, India, and Turkey leading these acquisitions. This trend underscores a strategic move to diversify reserves and hedge against currency volatility.
3. Inflationary Pressures and Interest Rate Policies
Inflation concerns have resurfaced, leading central banks to adjust interest rates. For example, the Bank of England recently cut rates from 4.75% to 4.5% to stimulate the economy amidst rising prices. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, thereby enhancing its appeal to investors.
4. Investor Demand and Market Sentiment
Investor appetite for gold remains robust, with increased inflows into gold-backed exchange-traded funds (ETFs) and heightened demand for physical gold. This surge is driven by a desire to hedge against market volatility and potential downturns in other asset classes.
In the Indian context, the rising gold prices have had a notable impact on consumption patterns. The World Gold Council anticipates that India's gold demand in 2025 will moderate from the previous year's nine-year peak, primarily due to the elevated prices dampening jewelry demand. However, investment demand remains strong, with a 29% increase observed in 2024, reaching an 11-year high of 239.4 tonnes. This trend is expected to continue, with growing interest in gold ETFs, digital gold, and physical forms like coins and bars.
In summary, the confluence of global economic uncertainties, strategic central bank actions, inflationary concerns, and strong investor demand has propelled gold prices to unprecedented levels. In India, while higher prices may temper jewelry consumption, investment demand for gold remains robust as individuals seek to preserve wealth and mitigate risk.