Why rally in gold prices is unlikely to end anytime soon

Gold prices are anticipated to maintain their upward trajectory as India gears up for its festive season, supported by both global and domestic factors. Research from Aditya Birla Sun Life Asset Management Company (AMC), citing World Gold Council data, indicates that international gold prices increased by over 1% in August, reaching $3,335 per ounce. This rise is attributed to a weaker US dollar, the possibility of a US Federal Reserve rate cut, and ongoing inflation concerns. Geopolitical uncertainties and tariff-related developments have further amplified gold demand. As a result, gold has delivered a 28% year-to-date return in 2025.

In the domestic market, gold prices in India rose by 1.6% in August, reaching ₹99,665 per 10 grams, marking a 31% year-to-date increase. The depreciation of the Indian rupee has helped reduce domestic gold discounts from $27 per ounce in June to $3.7 per ounce by mid-August, aligning Indian prices closer to international standards.

The jewellery market is also optimistic, with manufacturers restocking inventories and focusing on lighter designs to meet consumer demand during the festive season. This optimism has driven gold imports to $4 billion in July. Additionally, Gold ETF inflows were robust at ₹1,260 crore in July, reflecting a 96% increase in assets under management.

The Reserve Bank of India's gold reserves remain steady at 880 tonnes, representing about 12% of its foreign exchange reserves. The outlook for gold remains strong, bolstered by its role as an inflation hedge and negative correlation with riskier assets.

"Gold's value retention, its role as an inflation hedge, and its negative correlation with risky assets continue to support its case as a portfolio diversifier," stated Aditya Birla Sun Life AMC. The company expects the near-term outlook for gold to remain firm, with US monetary policy developments, rupee fluctuations, and global risk sentiment as key factors to watch.