The Great Gold Rush of 2025: Is It Time to Step Back?

Central banks must reverse course by reducing gold purchases to stabilise prices, writes Subhash Chandra Garg.

It took 18 years for gold to multiply from Rs 10,000 to Rs 1 lakh, generating an annual return of 13.6 percent.

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The price of 10 gram of 24-carat gold in India crossed Rs 100 in 1967, Rs 1,000 in 1980, Rs 10,000 in 2007, and Rs 1 lakh in April 2025, generating a thousand times growth in 58 years!

However, it took gold 18 years to multiply from Rs 10,000 to Rs 1 lakh, generating an annual return of 13.6 percent—not a jaw-dropping return. Yet again, gold prices rose from Rs 75,753 on 22 April 2024 to Rs 1,02,170 per 10 gram on 22 April 2025, yielding a staggering return of 34.9 percent.

Why is gold currently on a tearing growth? Will the gold prices cross Rs 10 lakh? Is there risk of a big reversal?

The World Gold Council (WGC) estimates that India, with 27,000 tonnes of gold out of the total of 209,000 tonnes in the world, holds about 13 percent. India also imports about 700-750 tonnes of gold annually—about 20 percent of 3,650 tonnes of gold mined worldwide (India mines barely 1.2-1.3 tonnes).

What does rising prices mean for India’s huge fascination for gold?

Nixon Unleashed Gold Prices

Global gold prices crossed $2,000 an ounce (28.35 grams) in 2020. The highest price thereafter tracked $1,959 in 2021, $2,070 in 2022, $2,122 in 2023 and $2,790 in 2024, and a record $3,500 in 2025.

The Bretton Woods Agreement of 1945 had made the US dollar—backed by the American guarantee of converting dollars into gold at $35 an ounce on demand—the global currency. Dollar remained pegged to gold at $35 per ounce until 15 August 1971, when the then US President Richard Nixon nixed the peg. This decision unleashed the gold prices by making gold essentially a precious asset.

Today, gold demand primarily emanated from three uses: jewellery, investment, and industrial. Industrial use, which includes electronics and temples decoration, is small at about 6-8 percent. Jewellery, which accounts for roughly 46 percent of global stock currently, is also witnessing a declining growth.

It is monetary (central banks holding about 21 percent of total stock) and investment (gold bars, coins, etc) which is growing at the highest pace.

Central Banks Fuel the Gold Boom

The WGC reports that the central banks purchased 273 tonnes of gold in 2020 and 463 tonnes in 2021, consistent with the post-2010 trends.

However, in 2022, the central banks net purchases jumped to 1,082 tonnes! The central banks have remained on a buying spree since then: purchasing 1,037 tonnes in 2023 and 1,180 tonnes in 2024.

They have never before bought over 1,000 tonnes annually for three consecutive years.

Today, the central banks now hold over 36,000 tonnes of gold as reserves, with the US holding the largest stock of 8,100 tonnes. The Reserve Bank of India (RBI) holds about 875 tonnes. In the last three years, China bought the largest quantity at 316 tonnes, followed by Poland, 146 tonnes, and India, 128 tonnes.

A Flight from the Dollar

Sometime around 2015, the central banks began realising the risk of keeping their reserves predominantly in dollars and started increasing their gold holdings. The RBI started buying gold in 2018 onwards.

This risk perception got enormously accentuated after the US froze Russian foreign currency assets in 2022—an unprecedented event. With the option of switching over to other currency reserves (euro, yen, pound, yuan) not very comforting either, the central banks took refuge in gold.

This explains the three years of over 1,000 tonnes annual gold purchases by the central banks, including the RBI. In 2024 alone, the RBI bought 73 tonnes of gold.

With US President Donald Trump launching his insane 'reciprocal tariff' war, the faith of the central banks in dollar assets and holding reserves in the US seems to be weakening further. Unless Trump eats a humble pie and reverses course, the gold-buying by the central banks may only increase.

Rising gold prices, driven by the central banks' purchases, are whetting investment demand, spurred by the psychology of buying an asset on an upward trajectory. As gold has delivered the best returns in 2024, the demand is likely to remain elevated, pushing up gold prices further.

Unless, of course, the central banks decide to prick the bubble.

India Along for the Ride

Gold prices in India is primarily the result of the interplay of three factors:

• Gold’s international price

• Rupee-dollar exchange rate; and

• Indian tax incidence

Average gold price of $2,625 per ounce ($926 per 10 gram) and rupee-dollar exchange rate of Rs 85.30 to a dollar on 1 January 2025 translated into an approximate price of Rs 79,000 per 10 gram of 24-carat gold on that day, fairly close to the prevailing market price.

As international gold prices touched $3,500 per ounce last week, while the exchange rate remained almost same, market price of 10 gram 24-carat gold in India also increased close to its translated price of Rs 1.05 lakh. Indian gold prices are likely to remain fairly aligned to the international gold prices.

There have been times when the central banks were selling gold. As part of a general agreement among them, especially after the global financial crisis in 2008, the central banks reduced their gold holdings. Compared to September 1999, Switzerland reduced its gold holdings from 2,590 tonnes to 1,040 tonnes in September 2009. Others did the same, including France (from 3,025 tonnes to 2,435 tonnes), and Netherlands (from 1,012 tonnes to 613 tonnes). This had a sobering effect on gold prices.

Gold is a difficult central bank asset. They cannot use it for maintaining international value of their currency value, or for other accounting purposes. Frenzy in gold prices is not good for the central banks, their functions, and their balance sheet.

It is time for them to reverse course by reducing gold purchases to stabilise prices. This would subdue investment demand, as people's psychology is more connected with the returns they expect. Once gold returns fall below those of other assets, the current feverish demand is likely to fade.

There is no reason for the RBI to continue buying gold at the current high prices. The RBI is effectively reducing its foreign currency reserves with the gold ($84.572 billion) becoming 12.3 percent of total foreign reserves ($686.145 billion) as of 18 April 2025.

The government can help in pricking this bubble as well. The Central government has already discontinued sovereign gold bonds. If the government and the Securities and Exchange Board of India (SEBI) can discourage exchange-traded fund and other gold-linked financial products, it could help stabilise the market.

Bringing order to gold prices will help everyone.

(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including 'The $10 Trillion Dream Dented, 'We Also Make Policy', and 'Explanation and Commentary on Budget 2025-26'. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)