Gold hits record highs but is the rally sustainable?

Gold prices have surged to unprecedented levels in both international and Indian markets, breaching $3,600 per ounce globally and crossing ₹1,09,000 per 10 grams domestically. This historic rally has been driven by a confluence of geopolitical tensions, economic uncertainty, and shifting investor sentiment. As the world grapples with instability across multiple fronts, gold has reasserted its role as the ultimate safe-haven asset.

Global Economic Uncertainty Fuels Safe-Haven Demand

The global economy is navigating a turbulent phase marked by slowing growth, persistent inflation, and volatile trade policies. The U.S. economy is exhibiting signs of strain, with revised job data revealing nearly one million fewer jobs than previously reported. This has triggered fears of a recession, prompting investors to seek refuge in gold. The uncertainty surrounding fiscal and monetary policy, especially under President Trump’s administration, has further intensified market anxiety.

Trump’s Ceasefire Initiative Falters in Ukraine

President Donald Trump’s much-publicized promise to end the Russia-Ukraine war has failed to materialize. Despite multiple rounds of negotiations and a brief, partial ceasefire, hostilities have resumed, resulting in devastating consequences. The lack of progress and perceived diplomatic ineptitude has undermined confidence in U.S. leadership, adding to geopolitical instability and bolstering gold’s appeal as a hedge against conflict.

Middle East Tensions Escalate After Israeli Strike in Qatar

In a dramatic escalation, Israel launched airstrikes targeting senior Hamas leaders in Doha, Qatar—a country that has long served as a mediator in the Gaza conflict. The attack killed several individuals and drew sharp condemnation from Qatar and other Arab nations. The strike occurred during a meeting to discuss a U.S.-backed ceasefire proposal, further complicating diplomatic efforts and raising fears of broader regional conflict. This geopolitical flashpoint has further fuelled gold’s rally, as investors brace for potential fallout.

Emergence of a New Economic Power Bloc Post-SCO Summit

The recent Shanghai Cooperation Organization (SCO) summit in Tianjin, China, signalled a potential shift in global economic power dynamics. Leaders from China, Russia, India, and other member states pledged to build a new multilateral framework that challenges U.S.-led institutions. President Xi Jinping’s proposal for a new development bank and financial incentives for SCO members underscore Beijing’s ambition to reshape global governance. This move toward a multipolar world order has heightened uncertainty around the dollar’s dominance, prompting central banks and investors to increase gold holdings as a strategic hedge.

U.S. Recession Fears and Tariff-Driven Inflation

The Trump administration’s aggressive tariff policies have raised the average effective tariff rate in the U.S. to its highest since 1935. These tariffs have led to higher consumer prices, reduced household income, and increased unemployment. The economic impact of protectionist measures has amplified recession fears, further boosting demand for gold. As inflation remains elevated and growth slows, gold offers a reliable store of value amid deteriorating economic conditions.

Expectations of U.S. Interest Rate Cuts

Amid weakening labour market data and persistent inflation, the Federal Reserve is widely expected to cut interest rates at its upcoming meeting on September 17. While a 25-basis point cut is almost certain, some analysts are betting on a more aggressive 50 basis point move. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors. The anticipation of monetary easing has been a key driver of gold’s recent surge.

Resilient Investor and Central Bank Demand

Investor appetite for gold remains robust, with record inflows into gold-backed ETFs. Central banks, particularly in emerging markets, have ramped up gold purchases to diversify away from the U.S. dollar and mitigate geopolitical risks. In India and China, consumer demand is also rising, supported by favourable regulatory changes and cultural affinity for gold. This broad-based demand underscores gold’s enduring appeal across market cycles and geographies.

Gold’s meteoric rise in 2025 is not merely a reaction to economic data or interest rate expectations—it reflects a deeper crisis of confidence in global institutions, fiat currencies, and geopolitical stability. As the world confronts a complex web of challenges—from failed peace initiatives and regional conflicts to shifting power blocs and economic headwinds—gold stands out as a beacon of safety and resilience. Unless these uncertainties ease, the rally may still have room to run.

(The author Hareesh V is Head of Commodity Research, Geojit Investments Limited. Views are own)

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