Introduction: Why Gold Still Matters in Modern Finance
Gold has always held a special place in the global financial system. From ancient civilizations to modern central banks, this precious metal has consistently been viewed as a symbol of value, stability, and security. Even though the gold standard was officially abandoned in the 20th century, gold continues to play a vital role in today’s economy.
Former US Federal Reserve Chairman Ben Bernanke once described gold prices as an indicator of economic health. Over time, gold has proven its importance as a hedge against inflation, a safe-haven asset during crises, and a powerful tool for portfolio diversification.
In recent years, gold prices have surged sharply, drawing renewed attention from investors, governments, and central banks across the world.
Global Gold Prices: A 25-Year Perspective
Over the last 25 years, global gold prices have witnessed significant volatility. Prices once hovered between US$280 and US$340 per ounce, but in recent times, they have crossed historic milestones, even touching US$4,500 per ounce during 2025.
From 2000 to 2010, gold delivered an impressive 16% CAGR, supported by global uncertainties and accommodative monetary policies. However, the next decade (2010–2020) saw relatively muted growth of around 3.7% CAGR, highlighting how sensitive gold prices are to economic cycles.
Post-2020, the global economic landscape changed dramatically. The COVID-19 pandemic, geopolitical conflicts, supply chain disruptions, and aggressive monetary easing pushed investors back toward gold. Over the last five years, gold prices have again surged at nearly 14% CAGR, reaffirming its role as a crisis-time asset.
Gold and the US Dollar: An Inverse Relationship
One of the most important drivers of gold prices is the US Dollar Index (DXY). Historically, gold and the dollar tend to move in opposite directions. When the dollar weakens, gold becomes cheaper for global buyers, boosting demand and prices.
During the 2008 global financial crisis, the US economy contracted sharply, unemployment surged, and interest rates were slashed close to zero. Massive quantitative easing weakened the dollar, pushing investors toward gold. As a result, gold prices rose sharply between 2008 and 2011.
A similar trend was observed during the COVID-19 crisis in 2020, when gold prices jumped over 27% as global equity markets collapsed.
Recent Surge: Why Gold Is Rallying Again
In the last two years, gold prices have once again accelerated sharply. Several factors are driving this rally:
- Heavy gold purchases by global central banks
- Rising geopolitical tensions and trade uncertainties
- Weakness in major currencies
- Strong investment demand for ETFs and physical gold
- Increased jewellery demand as an investment asset
In 2025 alone, gold has delivered returns of over 40%, making it one of the best-performing asset classes globally.
The India Story: Gold Beyond an Investment
India is among the top five gold importers globally, alongside China, UAE, Switzerland, and South Africa. Gold holds deep cultural and religious significance in India and plays a crucial role in jewellery exports.
However, heavy gold imports also impact India’s Current Account Deficit (CAD) and currency stability. To address this, the government introduced multiple policy measures over the years.
Gold Monetization Scheme (GMS)
Launched in 2015, the scheme encouraged households to deposit idle gold and earn interest. Over time, deposit limits were lowered, interest rates improved, and banks were allowed to participate more actively.
By 2025, nearly 38 tonnes of gold had been mobilized under the scheme, though medium- and long-term deposits were later discontinued due to changing macroeconomic conditions.
Sovereign Gold Bonds (SGBs)
Introduced as an alternative to physical gold, SGBs offered interest income and tax benefits. However, rising gold prices increased the government’s borrowing costs, leading to the discontinuation of new issuances in 2025.
Gold Imports and the Indian Rupee
There is a strong historical relationship between gold imports and the Indian Rupee. Higher gold imports often put pressure on the currency, contributing to depreciation. Over the last 25 years, the correlation between gold imports and INR has remained largely positive.
Since the COVID-19 period, India has seen double-digit growth in gold imports, while the rupee has continued to weaken, highlighting the macroeconomic impact of gold demand.
Demand and Supply Dynamics of Gold
Supply Side
Global gold supply mainly comes from:
- Mine production
- Recycled gold
Mine production has remained relatively stable due to regulatory challenges and environmental constraints. Recycled gold, however, has seen steady growth, especially during periods of high prices.
China remains the world’s largest gold producer, followed by Russia and Australia.
Demand Side
Gold demand is driven by:
- Jewellery fabrication
- Investment demand (bars, coins, ETFs)
- Central bank purchases
In recent quarters, investment demand and central bank buying have grown sharply, while jewellery demand has moderated due to high prices.
Central Banks and Gold Reserves
Central banks now hold nearly one-fifth of all gold ever mined. In the past five years, gold’s share in global reserves has increased significantly, particularly amid geopolitical uncertainty and declining trust in fiat currencies.
India’s gold reserves have more than doubled, rising from 7% of forex reserves in 2020 to over 15% in 2025. RBI’s gold holdings now exceed 880 tonnes, strengthening India’s external balance sheet.
Conclusion: What Lies Ahead for Gold?
Gold’s exceptional performance in recent years reflects deeper shifts in the global economy. Persistent geopolitical tensions, currency volatility, easing monetary policies, and rising central bank demand continue to support higher gold prices.
If conditions such as weak dollar demand, lower interest rates, and economic uncertainty persist, gold prices may remain elevated. However, a strong global recovery, higher inflation, or tighter monetary policy could lead to corrections. For investors, gold remains a powerful diversification tool—offering protection, stability, and long-term value in an increasingly uncertain world.
