Gold on a fresh peak: What is driving this endless rally?

So far in 2025, gold prices (24K, 99.9% purity) have jumped as much as 44.14% to close at ₹1,13,800 per 10 gram in Delhi on Friday, up from ₹78,950 per 10 gram recorded on December 31, 2024.

Gold futures for the October delivery also hit a record-high of ₹1,09,840 per 10 gram on the Multi Commodity Exchange (MCX) on September 9.

Gold thrives when geopolitical tensions rise and markets fluctuate. When other investments, like equities and currencies, turn risky, investors turn to gold. Let's look at what is driving gold's stellar rally in detail.

US tariffs and macroeconomic data

Tariffs imposed by US President Donald Trump have been fuelling gold’s safe haven demand for some months now. The recently imposed 50% tariffs on Indian goods, impacting several key sectors, provided a boost to the yellow metal’s demand and prices.

US macroeconomic data also impacts gold demand globally, and inflation and employment data are crucial for gold’s trajectory.

Currently, disappointing job numbers in the US have increased the expectations of a rate cut by the Fed, bolstering safe-haven demand for the precious metal.

"Growing global uncertainties and a weakening dollar index further fuelled safe-haven demand, while a weaker rupee lent additional support to gold and silver in domestic markets," the PTI report quoted Rahul Kalantri, VP Commodities, Mehta Equities, as saying.

The US-India trade deal might also be on the cards, as Prime Minister Narendra Modi welcomed US President Donald Trump’s positive remarks on trade talks on Wednesday, depicting confidence that the ongoing negotiations will make way for a significant partnership between them. A trade deal could also impact gold’s trajectory in the near future.

Market volatility and geopolitical tensions

Fluctuations in the stock markets, both domestic and international, affect gold prices as the yellow metal becomes more attractive for investors. Further, geopolitical tensions also aid gold’s bull run, as gold soars during uncertainties.

Central bank buying

Central banks globally added a net 20 tonnes of gold to their reserves in May 2025, as per the World Gold Council. Increased buying by central banks also fuels gold prices, as the demand for the metal increases. Central banks around the world are expected to buy 1,000 tonnes of gold in 2025, marking this as the fourth year of major gold stocking to diversify reserves, a Reuters report said, citing Metals Focus in June.

However, as per the World Gold Council, central banks have now slowed down with their gold purchases as prices are crossing all-time highs. Despite this, geopolitical risks are likely to sustain demand.

Festive demand

Gold and silver are more than just precious metals in India, with crucial traditional value. People in the country buy gold during festivals and for religious ceremonies, often fueling gold demand and prices during the festive season. Now that the festivals are just around the corner, demand for gold is expected to remain firm in the coming months.

Gold ETFs

Net inflows into gold ETFs soared by 74.3% to ₹2,189.51 crore in August. This comes at a time when equity mutual funds (MFs) saw a 21.7% drop in inflows to ₹33,430.37 crore in August from ₹42,702.35 crore in July. Higher inflows into gold ETFs also signal an increased safe-haven demand amid market volatility.

GST reforms

The recent GST reforms have provided a much-needed breather to the middle class, cutting down prices for many essential items near the festive season. The new GST regime is expected to boost consumer disposable income, which could also lead to higher gold buying. Moreover, GST rates on gold remain unchanged at 3% under the new rules.

Gold stocks

As per market experts, jewellery stocks are expected to soar if a US-India trade deal materialises. However, amid record-high gold prices, shares of most of the jewellery makers ended in the negative on Friday.

Senco Gold closed 0.75% down at ₹374.90 apiece on the NSE, while shares of Kalyan Jewellers India ended 0.6% lower at ₹502.75 apiece. Titan stock also ended 0.5% down at ₹3,565.50 per share on Friday.

Shares of Goldiam International ended 1.46% down at ₹397.10 apiece, and Shanti Gold International shares fell 0.3% to ₹223.80 per share.

However, the scrip of PC Jeweller closed 0.7% up at ₹13.16 apiece on the NSE, and Sky Gold and Diamonds stock also ended in positive, up 0.5% at ₹282.90 per share.

Some analysts also say that a higher price of gold in international markets will lead to margin contraction for most firms in the jewellery industry.

"In the near term, ahead of the festive season, there will be margin contraction for gold jewellers as the raw material cost has gone up sharply for them," market expert Avinash Gorakshakar recently told Upstox News.

Gorakshakar added that companies that procured gold at lower levels can manage to navigate the margin challenge, but for those buying at current levels, they will see margin pressure.

Further, he said that gold loan companies such as Muthoot Finance and Manappuram, however, stand to benefit from surging gold prices as the loan-to-value for them will go up.