GOLD IS ON a roll like Forrest Gump, running upwards for the last three years. Forrest Gump ran for three years, two months, and something. Where is this gold rally headed, and how long will it continue? No matter. Gold, that symbol of wealth and ancient hedge against uncertainty, is glittering brighter than ever. And as in 1986, the current gold rush is as much about psychology and fear as it is about economic fundamentals.

The comparison is not accidental. The gold rally of 1986 has striking similarities with what is happening in 2025. The new factors: aggressive central banks, digital disruption, and a changing investment class.

Manav Modi, senior analyst for commodity research at Motilal Oswal Financial Services, cites global uncertainty, shifting monetary policies, and safe-haven buying for the gold rush in 1986 and today.

“In both cases, geopolitical tensions played a central role: the 1986 rally was fuelled by Cold War anxieties and instability in the Middle East, while the 2025 surge reflects rising global conflict — from the Russia-Ukraine war to U.S.-China tensions and unrest in the Middle East,” says Modi.

“In both periods, gold served as a hedge against global risk and currency volatility. The weakening of the U.S. dollar was also a common driver. In 1986, the U.S. devalued the dollar after the 1985 Plaza Accord; similarly, in 2025, concerns about U.S. fiscal deficits, debt sustainability, and de-dollarisation are undermining confidence in the greenback,” says Modi.

In both years, uncertainty around interest rate policy and inflation fears made gold a haven. Shifts in central bank strategy — then and now — helped fuel demand for hard assets. However, the differences lie in the scale and structure of the rallies. In 1986, gold rebounded from a major fall, while in 2025, gold rallied within a long-term uptrend and was increasingly seen as a strategic reserve.

A tale of two rallies

To understand the significance of the current rally, one must revisit 1986. That year, gold prices surged globally, driven by economic instability in the West, a weakening U.S. dollar, and Cold War tensions. In India, it was also a time of high inflation, limited access to global markets, and an underdeveloped financial sector. Gold was an investment and protection.

Kaynat Chainwala, AVP-Commodities Research, Kotak Securities, says, “Years of rising inflation, currency devaluation, and political instability led to a boom in gold prices during the 1970s, culminating in a record high of $875 a troy ounce in 1980. However, as inflationary pressures eased and global economies and currencies began stabilising, gold prices sharply declined, reaching $300/oz in 1985. This was followed by a strong rebound in 1986, with prices rising above $400/oz.”

Chainwala says gold prices surged to $500/oz in 1987 but then stabilised below $400/oz over the next decade due to a stronger U.S. dollar and economic expansion.

While gold prices in 1986 rebounded temporarily before stabilising, in 2025, strong inflows into gold-backed ETFs (exchange-traded funds) and central bank demand suggest that the current rally may have more staying power.

The parallels are uncanny. The world is grappling with persistent inflation, sluggish economic growth, geopolitical instability (Ukraine, Gaza, Taiwan), and mistrust in fiat currency systems. What’s more, interest rates remain relatively high in developed economies, and investors across the globe — including in India — are looking for havens.

What is fuelling the 2025 surge?

Gold is surging on the back of several converging global and domestic forces. Despite covering only January to April 2025, the average gold price (₹83,865/10 gm) has already exceeded the full-year 2024 average of ₹72,763/10 gm. This marks a year-on-year return of approximately 15.25%, indicating a faster pace of appreciation in the current year.

Strong investment demand, central bank purchases, and growing geopolitical and economic risks have all contributed to a bullish outlook for gold. The rising likelihood of a recession, coupled with U.S. President Donald Trump’s sweeping tariffs, policy uncertainty, and fears of an escalating trade war, has reinforced gold’s appeal as a haven, pushing it to record highs in early April.

Chainwala says the trade standoff between the world’s two largest economies escalated when President Trump threatened an additional 50% import tax on China in response to Beijing’s new 34% retaliatory tariffs. Fears of a trade war prompted Chinese investors to pour a record amount of money into ETFs in the first week of April.

“These inflows will likely continue after Trump pushes ahead with levies of as high as 104% on Chinese goods. Besides, China’s central bank increased its gold purchases for the fifth consecutive month in March,” Chainwala says. At the time of going to press, total taxes on Chinese goods was at 145%, after China had responded with counter-measures in the tariffs war.

The unclear stance of the U.S. Federal Reserve on future rate cuts adds to the ambiguity; there are expectations of inflation rising once again amidst Trump’s tariff implications, supporting gold as a hedge against potential monetary easing and inflation.

The breakdown in international cooperation in the last few years has led to gold staying permanently high. Gold prices were at $850/oz in January 1980, which would be $3,486/oz in today’s terms.

“To break the current gold rally and trigger a corrective phase, several headwinds would need to align — conditions that appear highly improbable,” says N.S. Ramaswamy, Head of Commodities, Ventura Securities.

What are these conditions? A collaborative geopolitical environment, the complete absence of trade-war risks, a renewed cycle of interest rate hikes by the U.S. Federal Reserve, and the stabilisation of major global economies.

“Until such a combination materialises, the momentum behind gold will likely remain strong,” Ramaswamy says.

The role of central banks

While central bank buying boosts demand, it also signals deeper systemic worries. When the Reserve Bank of India and the central banks of China and Turkey load up on bullion, as the World Gold Council says they did in the past year, it is often a sign that confidence in fiat systems is weakening.

Ramaswamy says, “Economic slowdown with recession/stagflation fear creeping [in] has increased the central banks’ demand for gold. There is a focussed shift in their reserves build-up in gold against the U.S. Treasury Securities and the U.S. dollar currency. Currently, central banks worldwide hold an average of 10% of their reserves in gold, which could rise to over 30% in the coming years, supporting gold prices.”

According to the latest World Gold Council report, India emerged as the second-largest gold buyer in 2024, way ahead of China. (India bought 72.6 tonnes of gold against 44.17 tonnes by China.)

Retail investors behind the rally

India has a cultural affinity for gold bridal jewellery, festive gifting, and temple donations, making it more than just an asset. But recent years have seen a shift in intent. More and more Indians are buying gold — not for weddings but for wealth creation.

Data from the Association of Mutual Funds in India (Amfi) shows a marked uptick in inflows into gold ETFs, which pulled in record net inflows of ₹3,751 crore in January and ₹1,980 crore in February. Gold SIPs are now seen as a parallel to equity SIPs.

Moreover, demand spikes during global market selloffs or domestic political instability, suggesting gold is increasingly used as a tactical hedge. From homemakers in Lucknow to software engineers in Bengaluru, gold’s appeal cuts across demographics.

“Investment demand surged 25% in 2024, reaching a four-year high of 1,180 tonnes, with gold ETFs being a major contributor. Notably, 2024 marked the first year since 2020 in which gold ETF holdings were essentially unchanged, in contrast to the significant outflows observed in the previous three years,” says Chainwala.

In 2025, global gold ETF inflows continued for the fourth consecutive month in March.

The SGBs conundrum

Sovereign gold bonds (SGBs) have outshone all forms of gold, delivering the highest one-year return at 34%, thanks to both price gains and fixed interest. The 24K physical gold delivered a 31% return, beating most gold ETFs and proving the metal’s strength as a core asset. Gold ETFs lag direct gold and SGBs. With returns ranging between 26.69% and 30.45%, they offer liquidity but slightly lower gains.

Regarding SGBs, the government has been facing huge redemption costs as gold prices shoot up, besides the regular fixed interest outflow. The obligation is to repay investors the gold-equivalent value at maturity, making it financially unviable.

Over time, rising gold prices made these schemes expensive, especially since the government had to repay investors based on current gold values, plus interest. The schemes also didn’t significantly reduce imports or mobilise large quantities of gold. By 2024, the Gold Monetisation Scheme had collected just over 31 tonnes of gold.

Given these challenges, the government has not issued any new SGBs since February 2023, and the Union Budget 2025–26 made no provision for future issuances. Medium- and long-term GMS deposits have also been discontinued as of March 26, 2025. Short-term deposits may continue, depending on the banks.

Is this a hedge?

The million-rupee question remains: Is this gold surge a hedge against global chaos — or is it a canary in the coal mine?

Many experts believe it is a bit of both. On one hand, gold is rightly being treated as an antidote to uncertainty. On the other hand, its meteoric rise is beginning to mirror the speculative bubbles of the past. There is growing concern among economists that gold’s rally may be signalling deeper fault lines — monetary policy fatigue, impending recession in major economies, or perhaps even de-dollarisation.

In India, the rally reflects a broader discomfort with financial assets. Equities are volatile, real estate is expensive and illiquid, and fixed-income instruments barely beat inflation. Despite not offering any yield, gold seems like the only safe port.

The rally of 2025 may echo 1986 in many ways, but the context has evolved. Technology has changed how Indians access gold. Economics has changed how people buy it. But the instinct remains unchanged — to preserve, protect, and prosper.

What lies ahead

Investors should take a more strategic view instead of trying to time the market. Gold works best when part of a diversified portfolio, typically with a 5–10% allocation. This helps balance risk, especially during volatility in equity or debt markets.

Ramaswamy of Ventura Securities says, “Investors should buy and build up long positions in this rally, as the price outlook seems to be reaching $3,300-3,500/oz in the medium to long term by mid-year 2026 (A 10% upside in international gold from $3,200 levels).”

Adhil Shetty, CEO of online financial services marketplace BankBazaar.com, feels that staying invested makes sense for those who already hold gold if it aligns with their overall asset allocation. “For new investors, systematic investment methods such as monthly SIPs in gold ETFs can help mitigate price fluctuations. Selling gold should be aligned with financial goals, such as funding a major expense or rebalancing a portfolio, not driven purely by short-term price movements," says Shetty.

As Shetty says, gold is not about quick gains; it is about long-term stability and protection.