In the world of finance, few assets carry the cultural and economic weight of gold. While the international monetary system moved away from the gold standard in 1971, the “yellow metal” has never lost its luster. As we step into 2026, gold isn’t just a commodity; it’s a barometer for the health of the global economy.
According to a comprehensive report by the Economics Research Department, gold has outperformed almost every other asset class recently, delivering staggering returns amidst global uncertainty.
A Historic Surge
The numbers are, quite frankly, remarkable. Over the last 25 years, global gold prices generally hovered between US$ 280 and US$ 3,400 per ounce. However, 2025 shattered those boundaries, with prices crossing the US$ 4,500 per ounce mark in December.
This represents a 40% return within a single year. To put this in perspective, after a period of marginal growth (3.7% CAGR) between 2010 and 2020, the last five years have seen prices surge by a CAGR of 14%.
What is Driving the Rush?
Gold thrives on volatility, and the current landscape provides plenty of it. Several human and geopolitical factors are at play:
- Central Bank Appetite: Nations are increasingly using gold to insulate themselves from political and financial risks. Central banks now hold one-fifth of all mined gold reserves.
- Geopolitical Friction: Ongoing conflicts and uncertainty regarding global trade deals and tariffs have pushed investors toward “risk-off” assets.
- The Dollar Factor: A weakening U.S. Dollar Index (DXY) has historically pushed gold prices higher, a trend that remained consistent through the 2008 financial crisis and the 2020 pandemic.
The India Story: Beyond Tradition
India remains one of the world’s top five importers of gold. For us, gold is more than an investment; it is a cultural and religious cornerstone. However, this high demand impacts our Current Account Deficit (CAD).
To manage this, the government has introduced several innovative measures:
- Gold Monetization Scheme (GMS): Launched to mobilize “idle gold” held by households, this scheme allowed residents to earn interest on their physical gold. By March 2025, approximately 37.8 tonnes of gold had been mobilized.
- Sovereign Gold Bonds (SGB): A popular substitute for physical gold that offered a 2.5% annual interest. However, due to the soaring prices of gold—which increased the government’s borrowing costs—the scheme was discontinued in February 2025.
The RBI’s Strategic Pivot
In a significant move, the Reserve Bank of India (RBI) has been increasing its gold holdings, which reached a record high of over 880 tonnes in Q3CY25. Interestingly, the RBI is also actively bringing its gold reserves back to domestic vaults from overseas custodians like the Bank of England to protect against global market volatility.
Supply Constraints
While demand is sky-high, supply isn’t keeping pace. Total gold supply in 2024 was lower than the previous year. The mining industry faces modern challenges, including stricter environmental regulations and logistics hurdles. While China remains the largest producer (10.4% share), mine production in the US and Australia has seen a deep decline.
The Outlook: What Lies Ahead?
Will the rally continue? The analysis suggests that if we see continued dollar weakness, easing monetary policies, and persisting trade uncertainties, gold prices could rise even further.
Conversely, if global growth stabilizes and inflation cools enough to nudge the Fed toward rate hikes, we might finally see a “risk-on” sentiment return to the markets, offering a much-needed correction in gold prices. For now, gold remains the ultimate hedge—a timeless asset that continues to prove its worth in an unpredictable world.
