With global gold prices soaring past $3,000 a troy ounce and Indian prices at over ₹9,000 a gram, the yellow metal is the best performing asset class so far this year. Its 15 per cent year-to-date gain has beaten not only Indian benchmarks such as the Nifty50 (minus 3 per cent) and the 10-year government bond (2 per cent gain), but also most global stock indices including the US S&P 500 (minus 4 per cent), Nasdaq 100 (minus 9 per cent) and Euro Stoxx (12 per cent gain).
Historically investors have flocked to gold during times of war and runaway inflation. But this time around gold is making new records when long-running geopolitical conflicts seem to be de-escalating. Inflation has been moderating too, with inflation prints in key economies falling below central bank targets. The drivers of this bullion surge are, therefore, very different from the past. The jury is still out on whether Donald Trump will succeed in Making America Great Again with his shock and awe tactics. But his first two months have been marked by ad-hoc policies on reciprocal tariffs, trade skirmishes with China and Europe and wide-ranging cuts in government jobs. Therefore, economic forecasters are beginning to call a US slowdown, if not a recession later this year.
Sound-bytes from the Trump camp that it isn’t too worried about the economic or market fallouts of its policies have further spooked markets. As a result, the US Dollar index is down about 4.7 per cent year-to-date and US stocks have wiped out $4 trillion in market capitalisation in just a month. This has prompted global investors to rethink their ‘safe haven’ bets on the dollar and scramble for country-neutral alternatives such as gold. World Gold Council data show flows into Gold Exchange Traded Funds (ETFs) surging to $9.4 billion (nearly 100 tonnes) in February, the highest monthly figure in three years. Worries about US recession apart, expectations of a US rate cut have also been a driver of the recent gold price surge. Gold competes directly with US treasuries as a safe haven choice, and treasuries have seen their yields plummet on rate cut expectations. Meanwhile, trade wars and the prospect of de-globalisation are prompting global central banks to add more physical gold to their reserves to diversify from the dollar.
The Reserve Bank of India has already been adding to its gold reserves, with gold accounting for about 11 per cent of its foreign exchange reserves in February 2025 against 7.5 per cent two years ago. It may look to accelerate the pace. For India, the surge in gold price to record highs isn’t bad news from a macro perspective. Indian jewellery buyers are price-sensitive and reduce their purchases when gold prices soar. Trade data for February show a 62 per cent year-on-year contraction in gold imports, contributing to a narrower trade deficit. Spikes in gold prices bring the large stockpile of gold with Indian households back into circulation, as they borrow against it or exchange it for cash.
