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. During geo-political tensions, this demand surged. Russia’s invasion of Ukraine in 2022 and the growing conflict between China and Taiwan, and Israel—Hamas, saw central banks increase their gold holdings.

Central banks bought more than 1,000 tons of gold in the three most recent years. In 2024, central banks bought a record 1,180 tonnes of gold, up from 1,082 tonnes in 2022 and 1,037 tonnes in 2023.

In 2024, India became the second largest gold buyer, trailing only Poland, which purchased 89.54 tons of gold. India bought 72.60 tonnes, while China purchased 44.17 tonnes. As of September 2024, the Reserve Bank held 854 metric tonnes of gold. You can read my note on why central banks buy gold for a deeper background.

Third, central banks are not just buying gold, they are also bringing physical gold back into their countries. Most countries, including India and the US banks, investors and traders, keep part of their gold holdings in the Bank of England vaults. Since last year, they have been transferring physical gold back into their domestic vaults.

Why? Well, there may not be an official confirmation on this but many experts believe it could be due to Trump’s tariffs or any other levy which may be imposed on the yellow-metal at some point in time.

No wonder, gold shipments to New York’s COMEX exchange have increased by roughly 75% since the U.S. election.

In May 2024, India remitted 100 tonnes of gold from the UK, and another 102 tonnes arrived in October. Overall in 2024, India moved approximately 200 metric tons of gold from London to its Indian vault.

Given the emergence of trade wars post Trump’s tariff announcements, this could be seen as a proactive measure. The United States and its allies blocked approximately $300 billion in Russian foreign exchange holdings, including gold, in 2023, which may have alarmed countries.

Meanwhile, the London gold market is facing pressures in meeting physical gold demand with increasing withdrawal wait times. This demand for physical gold from London vaults is also playing a role in the gold price rising.

Fourth, the overall demand for gold shot up after the pandemic hit in 2020. The big push in demand led to a surge in price. The demand was led by Jewellery fabrication, technology, investments, and central banks. In 2024, total annual gold demand hit a new record high of 4,974 tonnes, resulting in the highest ever total value of demand at $382bn.

Source: Gold.org

Fifth, the most significant reason for gold to be around $2,900 could be attributed to Trump’s tariff announcements which have initiated a trade war.

Trump’s ‘reciprocal tariffs’ on all countries by matching the import duties imposed by other nations is to go live on April 2, 2025. Meanwhile, Trump’s 25% tariffs on imports from Mexico and Canada and 20% on Chinese goods are already in place, with some exceptions for Mexico and Canada.

The international trading system is getting threatened and uncertainties will keep demand for gold as a safe-haven high. If such uncertainties continue and economic growth falters, the US Fed may have to cut rates in a hurry, thus weakening the dollar and shoring up gold prices further.

One more thing. The talk of a recession in the US, which could be a little early, is emerging in some quarters. After all, in recessionary times, gold is the most preferred safe avenue to stash one’s wealth.

Also Read: Will the price of gold cross Rs 1 lakh in 2025?

Summing Up

Gold dominated headlines in 2024. Will the bull run for gold continue in 2025, remains to be seen, but all macro factors signal further strength in the gold price. The 10 grams 24 carat gold rate today in India is Rs 86,180 and $2,921 in the international gold market.

Keep an eye on US consumer price (inflation) data and every move Trump makes in aggravating the trade wars leading to global uncertainties. Overall, the interplay of interest rates, the dollar, Central banks, geo-politics, trade wars and most importantly macroeconomic uncertainty would drive the demand for gold as a storage of wealth and a hedge against risks.

‘God’s own currency’ is Gold – ignore it at your peril or depend on it to ride the next wave of crisis.

The value of gold is the highest during a crisis.

And if you believe there is a crisis brewing, then, you also know which direction the price of gold is probably going to move in…

Also Read: Gold vs. Sensex: A 20-year analysis reveals crucial lessons for asset allocation