Gold prices near record highs again: What’s driving the surge?

Gold prices in India have soared to near-record highs in July 2025, with MCX most active August futures prices touching ₹100,555 per 10 grams last week. This sharp rise is not an isolated domestic phenomenon but a reflection of a complex interplay of global market dynamics, currency fluctuations, and shifting demand patterns in major economies like China and India.

Globally, gold has been on a strong upward trajectory, trading above $3,400 per ounce. This rally is fueled by persistent geopolitical tensions, central bank buying, and investor demand for safe-haven assets. Indian gold prices closely track international trends, but the impact is magnified by the exchange rate. The correlation remains strong, with domestic prices rising in tandem with global benchmarks, adjusted for import duties and currency movements.

The Indian Rupee has depreciated significantly against the US Dollar in the past few years. This decline has made gold imports more expensive, pushing up domestic prices. Since India imports nearly all of its gold, the INR/USD exchange rate plays a pivotal role in determining local prices. Even if global prices stabilize, a weaker rupee can keep domestic gold expensive.

India and China together account for over half of global gold consumption. In China, demand has rebounded strongly post-COVID, driven by economic recovery and consumer confidence. In India, despite high prices, demand has remained resilient, especially in rural areas where gold has a traditional store of value. However, the nature of demand is evolving. Jewelers report a shift toward lighter jewelry and gold coins, as consumers adjust to higher prices.

Gold’s appeal as a safe-haven asset has intensified amid global uncertainties. The ongoing Russia-Ukraine conflict, tensions in the South China Sea, and instability in the Middle East have all contributed to a risk-off sentiment among investors. Central banks, including the Reserve Bank of India, have continued to add gold to their reserves, reinforcing its strategic importance.

Adding to the uncertainty is the renewed rhetoric from the U.S. President Donald Trump, who has proposed sweeping tariffs on various countries. This has reignited fears of a global trade war and driven investors toward gold as a hedge against economic disruption and inflation.Gold prices have shown resilience amid recent positive economic data from the United States, which has added complexity to the Federal Reserve’s policy outlook. Despite solid employment figures and steady consumer spending, policy uncertainty remains elevated. Looking ahead, several factors could influence gold demand in India. With major festivals like Diwali and Dussehra approaching, demand is expected to rise. Weddings, a major driver of gold purchases, are also set to pick up in the second half of the year. Likewise, a normal monsoon, as forecasted, could boost agricultural incomes and rural gold buying, which accounts for a significant share of total demand.

Gold’s rally in India is a result of both global and domestic forces. While high prices may deter some retail buyers, the metal’s enduring appeal as a hedge against uncertainty ensures that demand remains robust. As geopolitical tensions persist and currency pressures continue, gold is likely to remain a favored asset class for Indian investors in the months ahead.

(The author is Head of Commodity Research, Geojit Investments Limited)