Why is Gold Price Rising? Key Factors and Historical Rates

If you've been watching the financial markets lately, you've probably noticed gold prices hitting remarkable highs. The current gold rally is fascinating but not surprising. Let's explore why gold price is rising, the key factors behind it, and also look at the historical rates of gold.

Why is the gold price increasing?

In Feb 2025, gold prices have surged to an all-time high of ₹86,560 per 10 grams in India. Several factors contribute to this rise:

• Global conflicts: Gold is always looked as an investment that is safe to hold during situations of crisis or uncertainty. The current ongoing wars, like the Russia-Ukraine conflict and the unrest in the Gaza-Palestine region, have made investors look for safer options like gold.

• Uncertainty in US policies: With President Trump assuming office, there have been changes in US government policies, including possible shifts in support for Ukraine and new trade tariffs. These factors have made the global economy uncertain. This pushes more people toward gold.

• US Federal Reserve’s decision on interest rates: The US central bank is being cautious about raising interest rates. Since gold doesn’t give interest like bank deposits, it becomes more attractive when interest rates are low.

• Gold buying by central banks: Big financial institutions and governments have been buying more gold than expected, in a bid to diversify away from dollar assets. Central banks bought more than 1,000 tons of gold for the third year in a row last year. The Reserve Bank of India(RBI), The National Bank of Poland along with the Central Bank of Turkey remained the top buyers. This action also has a bearing on increasing gold prices.

These combined factors have led to the recent surge in gold prices.

Factors that Influence Gold Prices

Gold prices fluctuate based on a combination of global economic conditions and investor sentiment. Here are the major factors that generally have a bearing on gold prices:

1. Inflation and Interest Rates

Inflation is a state in the economy where prices of goods and services increase over time. This in turn, erodes the value of your cash and makes your purchasing power lesser. When inflation rises, gold tends to perform well as it retains value better than cash. While Inflation erodes the purchasing power of currencies, gold is an attractive store of value.

If the rate of interest in the economy is high, investors tend to deposit money with the banks in the hope of earning higher interest than in gold which doesn't promise fixed returns. Higher interest rates increase the opportunity cost of holding gold, which doesn’t generate income like bonds or savings accounts. However, if inflation outpaces interest rate hikes, gold remains a favored hedge.

2. Global Economic Conditions

Global economic conditions play a huge part in determining gold prices.

Economic recessions often trigger a surge in gold prices as investors seek stability. Uncertainty in stock markets and falling GDP growth rates push investors toward safe-haven assets like gold.

In the period from October 9, 2007, to October 1, 2010, during the height of the global financial crisis triggered by sub-prime lending, the price of gold rose by 78.9%, whereas the S&P 500 index in the US fell by 20.1%. The early stages of the coronavirus pandemic, between December 1, 2019, and March 1, 2020, saw gold rise by 7.6% while the stock market sank 19.8%.

3. Geopolitical Risks

Conflicts or war-like situations, trade wars, or global pandemics create uncertainty, making gold an attractive asset. When investors fear potential instability, they move funds into gold as a protection strategy.

Example: The Russia-Ukraine war and U.S.-China trade tensions have significantly influenced gold prices in recent years. Political instability in the Middle East has also historically led to price surges as investors look for safe alternatives.

4. Central Bank Policies and Gold Reserves

Central banks worldwide hold gold as part of their reserves to diversify their reserves and as a protection against inflation. Their buying or selling decisions impact prices. A higher demand from central banks can drive prices upward.

In 2022, central banks purchased the highest amount of gold in over 50 years, further fueling price hikes. Countries like China and India have been steadily increasing their reserves, reinforcing long-term confidence in gold.

5. Supply Constraints and Mining Costs

As with any natural resource, gold is not available in abundance and counted among the rarest metals. It has to be mined from the earth. However gold mining is expensive, and declining new gold discoveries have restricted supply. Unlike fiat currency, gold cannot be printed, making its scarcity a key factor in price appreciation.

If mining costs increase due to rising fuel prices, stricter environmental regulations, or labor shortages, gold prices tend to move higher.

Geopolitical instability in major gold-producing countries, such as South Africa and Russia, can further strain supply chains, leading to price spikes.

6. Seasonal demand based on cultural significance

Gold holds a major significance in Indian culture. The demand for gold increases during the wedding and festival seasons like Akshay Tritiya, Dhantera, and Diwali. This increase in demand for gold pushes up the prices of gold during those particular events.

Historical Gold Rates: Price Trends Over Time

To put things into perspective, let’s take a look at how gold prices have moved over the years:

Based on the historical data, here are the average annual gold prices in India at the end of each decade, along with the most recent price:

Source: Taxguru, LiveMint

From the early 2000s to today, gold has seen a remarkable rise in price, primarily due to financial crises, inflation, and geopolitical tensions. In 2011, for example, gold reached a peak due to concerns about the European debt crisis. Similarly, during the COVID-19 pandemic in 2020, gold prices surged as investors sought safe-haven asset

Gold Price Future Prediction

Predicting gold prices is tricky, but based on current trends, here’s what could happen:

• If Inflation Remains High: Gold could continue its upward trend as investors look for a hedge.

• If Central Banks Keep Buying: A steady demand from central banks will likely support prices.

• If Economic Growth Slows: A weak global economy might push more investors into gold, further driving up prices.

• If Interest Rates Drop: Lower interest rates make non-yielding assets like gold more attractive.

Some analysts predict that gold could surpass ₹90,000 per 10 gms in 2025, especially if economic uncertainties persist. However, as with any other market, it is good to remember that gold prices can also experience short-term declines due to profit-booking or rising interest rates.

Conclusion

If you’re considering investing in gold, staying informed about global economic conditions, central bank policies, and geopolitical risks will help you make better decisions. Whether you're investing for the long term or looking for short-term gains, having a portion of your investment portfolio in gold is advisable.