Gold, Silver rates: What’s fuelling the bullion boom?

In a world riddled with geopolitical turmoil, macroeconomic jitters and shifting policy winds, two age-old hedges are back in the spotlight: gold and silver. Over the past year, both metals have seen a formidable rally, rekindling investor interest, reshaping portfolio strategies and challenging the returns of even mainstream equity indices.

Over the past three years, gold and silver have delivered returns of 91% and 79%, respectively, while the benchmark Nifty 50 equity index has generated 62% returns.

A significant contributor to this rally has been the return of the safe-haven trade. From the prolonged Russia-Ukraine war to the flare-ups in West Asia, most notably the brief but intense war between Israel and Iran, the fragile geopolitical order has given rise to a widespread sense of anxiety.

However, a big change this time is that more investors and central banks have added gold in their portfolio even as there are signs that dollar holdings have declined. This is, perhaps, not surprising considering the impact of US President Donald Trump’s trade policies. The US Dollar Index Futures have dropped 12% till June this calendar year.

“Markets are being driven by fear again, and gold thrives at such times. The Iran-Israel conflict, though short-lived, had a disproportionate impact on market psychology,” says Naveen Mathur, Director of Currency & Commodities at wealth management firm Anand Rathi Wealth.

Another major pillar of support is sustained purchases by central banks and institutions. Despite a slight slowdown in monthly purchases, central banks added a robust 243 tonnes of gold in Q1 2025 above the five-year average of 196 tonnes. China, India and Russia were the key players, though recent months have seen more measured accumulation, says Modi. Importantly, no major central bank has turned net seller, underlining gold’s role as a store of value amid currency and policy uncertainties, he adds.

For instance, the share of gold in the Reserve Bank of India’s total foreign exchange reserves has increased from 8.7% in June 2024 to 12% in June 2025, as per CMIE’s economic outlook data.

A recent survey by the Official Monetary and Financial Institutions Forum (OMFIF), a global think tank focussed on central banking and economic policy, revealed that close to 60% of the 75 central banks surveyed are seeking to diversify their portfolios within the next two years. Gold is the most demanded asset class and 32% of central banks expect to increase their holding of the yellow metal in the short term.

In case of silver, apart from geopolitical concerns, the fact that it is an industrial metal had added to the price rise. Over 50% of the demand comes from industrial sectors, especially solar, electronics and electric vehicles. The surge in demand from green energy sectors has created a persistent supply deficit for the fifth straight year, and this industrial demand is expected to rise by another 4% in 2025, says Manav Modi, Senior Analyst of Commodity Research at Motilal Oswal Financial Services. This will add fuel to the rally.

Since June 2024, the AUM of silver exchange-traded funds (ETFs) has grown from Rs 7,473 crore to Rs 16,866 crore as of May 2025, a growth rate of 126%. During this period, the AUM of gold ETFs grew 82%, from Rs 34,356 crore to Rs 62,453 crore. The AUM of major mutual funds for gold and silver on the domestic front has increased by more than 20%. SPDR Gold Shares, one of the largest gold-backed ETFs globally, has seen a steady resurgence. In India, demand for sovereign gold bonds (SGBs) and gold ETFs has jumped, mirroring investor caution and long-term positioning, as per a World Gold Council report.

Prathamesh Mallya, DVP of Research, Non-Agri Commodities and Currencies, at brokerage Angel One, says tariff turmoil, weakening of the dollar index, weak US economic data, sluggish retail sales, and declining consumer confidence have contributed to this situation. “This has led to a slowdown in global growth, in turn leading investors to move towards safe-haven assets like gold and silver. Hence the rally in gold and silver prices.”

Lastly, in the Indian context, a depreciating rupee has added another layer of buoyancy to gold prices. The rupee had dipped from around 82 to the dollar to nearly 89 in recent months, before rising to around 86, significantly inflating domestic bullion prices. Since gold is dollar-denominated, a weaker rupee increases the landed cost of gold imports. For Indian investors, this has translated into amplified returns on gold holdings, adding to the metal’s allure.

Will the Rally Sustain?

While gold and silver have posted impressive gains, future returns expectations may need to be tempered. Experts are cautiously optimistic, with silver’s short- to medium-term outlook stronger, supported by macro trends, industrial growth and supply dynamics.

Gold is expected to consolidate in the near term, with few fresh triggers, according to Modi of Motilal Oswal. “Without fresh triggers such as an aggressive rate cut or a new geopolitical flashpoint, gold may trade in a broad range.”

In contrast, silver is showing far more compelling momentum, underpinned by robust industrial demand and a persistent supply deficit. N.S. Ramaswamy, Head of Commodities & CRM at online trading platform Ventura, says, “Silver has a stronger case to outperform gold,” especially due to its growing role in green technologies, such as solar photovoltaic cells and EV components. Roughly half of the annual silver demand is industrial, and there is no substitutable component for many of its applications, making it indispensable in a transitioning global economy.

The gold-silver ratio, currently near 91:1, is expected to compress toward 83:1, reinforcing silver’s outperformance, he adds. The ratio indicates the amount of silver ounces required to purchase one ounce of gold. A higher ratio indicates that silver is cheaper and vice versa.

Investor Strategy

For investors wondering if they have missed the rally, the answer lies in strategy and allocation. Experts recommend a measured, diversified approach, especially as the second half of this calendar year is expected to remain volatile.

Experts caution against lump sum investments and recommend a staggered, disciplined approach. “Don’t go all in at once, spread your purchases over time. Use ETFs for liquidity and SGBs for long-term, tax-free capital gains. Use dips as opportunities to accumulate, especially in silver,” says Mathur.

Analysts recommend allocating 10–15% of the portfolio towards precious metals, split 60:40 in favour of gold. Aggressive investors can consider a 50:50 allocation.

Disruptive events in any part of the globe, be it geopolitical, macroeconomic, tariff related or a slowdown in global GDP growth, will be key triggers for gold and silver.

Amidst rising economic and geopolitical risks, both metals continue to offer diversification, protection and potential for capital appreciation. The bottom line for investors: make staggered investments.

@riddhima765