Beyond the Fed: Why gold’s next rally could be different

For years, the most convenient explanation for a gold rally has been the U.S. Federal Reserve. Lower interest rates, falling real yields and a weaker dollar typically make a non-yielding asset like gold more attractive. But from where I sit today, that framework alone no longer explains the gold market.

The next meaningful rally in gold could be driven by something much deeper: a changing perception of money, risk and portfolio diversification. The Fed will undoubtedly remain important. Markets will continue to react to inflation, employment data and the direction of U.S. interest rates. But gold is increasingly responding to structural forces that operate independently of the Fed’s next meeting.

The first is central-bank demand. Gold is no longer simply a reserve asset; for many central banks, it has become a strategic diversification tool. The World Gold Council expects central bank buying to remain strong through 2026 (around 20% of global gold demand comes from central banks), while investment demand is likely to remain the primary driver of overall demand growth including strong inflows through ETFs.

The second is growing concern around fiscal credibility and currency risk. With U.S. debt levels elevated (above $40 trillion) and long-term bond markets facing increasing uncertainty, investors are beginning to ask a different question: not merely “What will the Fed do?”, but “How do I protect purchasing power if the policy mix becomes increasingly complicated?” Recent market reactions to U.S. Treasury actions and concerns around dollar debasement have reinforced this narrative.

Third, geopolitical fragmentation is becoming a portfolio consideration rather than an occasional shock. From trade tensions to sanctions, conflicts and shifting global alliances, investors are increasingly valuing assets that are not someone else’s liability. Gold’s appeal lies precisely in that characteristic.

As a business leader, I also see an important change in investor behaviour. Gold is moving from being viewed primarily as a safe haven trade to becoming a strategic allocation. That distinction matters. A safe-haven purchase is usually temporary; it is made when fear rises and sold when fear subsides. Strategic allocation is different. It is about owning an asset because the investor believes the financial system itself is evolving.

That could make the next gold rally less linear, but potentially more durable. I would therefore caution investors against looking at every correction as the end of the gold story like we are seeing today post Fed chair Kevin Warsh’s hawkish statement at a recent Jackson hole meeting on account of inflation control or every geopolitical headline as a reason to chase prices. Gold has already demonstrated that it can experience sharp corrections even within a structurally bullish environment. The World Gold Council’s data also shows how investment demand has increasingly outweighed fabrication demand, highlighting the changing composition of the market.

For Indian investors, the message is particularly relevant. Gold should not be viewed simply as a trade on the next Fed decision. The rupee, domestic inflation, global interest rates, geopolitical risk and international capital flows can all influence returns.

In my view, the most important question for the next phase of gold is not “When will the Fed cut rates?” It is “How much gold does the world want to own when confidence in traditional financial anchors is being reassessed?”. If that question continues to gain importance, gold’s next rally could be fundamentally different and potentially much more structural than the rallies we have seen in the past.

(The author is Head of Commodities Retail Business, Kotak Securities. Views are personal.)