Gold Price Touch Record Highs. Should Investors Buy More or Sell?

And indeed, gold prices continue to be on an unstoppable upward journey. The MCX spot price per 10 grams of gold touched a fresh record high of Rs 88,288 as of March 19, 2025. This marks the 3rd consecutive monthly gain for gold.

In 2025 so far, gold price has gained a staggering 16.3%, significantly outperforming other key asset classes such as equity and debt. This performance has been replicated across major currencies. Market experts are now of the view that gold at Rs 1 lakh may not be far off.

So, does the gold at all-time high levels makes it a case to buy more or book profits?

To understand that we need to first look at the factors that may drive the rally in gold in the near term:

Central Banks buying gold - Central bank are major players in the gold market and their gold purchases significantly influences gold prices. with increased demand from these institutions, including the RBI, has led to higher prices, as seen in recent years, where central banks have been accumulating gold reserves.

Economic uncertainty and trade wars - Uncertainty over the US trade tariffs and the resultant trade wars under Trump administration has given rise to safe haven demand for gold.

Geopolitical risks persisting - Lingering tensions in the Middle East, including Israel's military operations in Gaza have contributed to gold's return.

Inflation concerns - US President Donald Trump's protectionist measures are expected to fuel inflation. This along with adverse weather events pose a risk to inflation outlook prompting gold to reach multiple highs

Expectations of US rate cut and weakening dollar - Gold is highly sensitive to interest rate expectations and US dollar. If the US Federal reserve signals further rate cuts in the year, the US Dollar could weaken, boosting gold prices as lower rates reduce the opportunity cost of holding gold. Notably, the Federal Reserve kept interest rates unchanged at 4.25%-4.50% in its March meeting but signalled two possible rate cuts by the end of 2025.

Impact of gold price rally on gold demand

According to a report from the World Gold Council (WGC), the record gold prices have dented demand, particularly for gold jewellery. Consumers continue to wait on the side lines hoping for a correction in prices or at least signs of price stability. However, investment demand for bars and coins remains relatively healthy, driven by bullish sentiment regarding the future trajectory of the gold price.

Meanwhile, the surge in gold prices has prompted sales of old gold jewellery. Retailers have reported a significant uptick in scrap or old gold sales, with some attributing up to a third of their sales to the exchange of old jewellery for newer, lighter pieces. Furthermore, loans against gold jewellery have increased. As of January 2025 end, retail gold loans by commercial banks were up 77% y-o-y, indicating that consumers are increasingly leveraging gold for liquidity and financial gain.

Impact of gold price rally on Gold ETFs

Indian gold ETFs continued their positive inflows in February. While they recorded lower inflows than January's record high, they remained healthy, driven by broadening investor interest amid global economic and market uncertainty and the positive momentum in the gold price.

According to the Association of Mutual Funds in India (AMFI), gold ETFs recorded net inflows of Rs 1,980 crore in February, marking the tenth consecutive month of positive flows. Gold ETFs had recorded inflows worth Rs 3,751 crore.

Looking ahead...

As per WGC analysis, in view of the speed of gold's latest move, it would not be surprising to see some price consolidation. But despite potential short-term volatility, the most important determinant for gold's next move is whether fundamentals can provide long-term support to its trend.

While price strength will likely create headwinds for gold jewellery demand, push recycling up, and motivate some profit taking, WGC is of the view that there are many reasons to believe that investment demand will continue to be supported by a combination of geopolitical and geoeconomic uncertainty, rising inflation, lower rates, and a weaker US dollar.

How should investors approach gold now?

After significant gains in 2024, gold continues to the top performing asset class in India, in sharp contrast with the negative return from domestic equities and notably surpassing gains in fixed income assets (bonds and bank deposits). With central banks actively accumulating gold and investors seeking stability amid uncertain global environment, gold remains a favoured asset. This underscores the strategic significance of gold in investor portfolios.

In such a scenario, investors looking to add gold as a part of portfolio diversification and having a long-term horizon of 7-10 years or more, gold can continue to add value and can be a part of strategic allocation to boost portfolio returns. One can consider tactically allocating around 10% to 15% of their investment portfolio to gold, ideally via Gold ETFs.

However, if the exposure to gold has exceeded 10-15% of your portfolio amidst the rally it would be prudent to book some profit to bring back the portfolio to the desired allocation.

When investing in gold one should be mindful of the risks involved. This is because like any other investment, gold price too can witness volatility, short-term corrections, as well as phases of stagnant growth. Investors should avoid going overboard with investments in gold, particularly with prices at record highs. Remember that past instances of superior performance may not sustain in the future.

Thus, in view of the fact that market dynamics involve frequently, investors should tread with caution and avoid chasing momentum. Investors should adopt a strategic approach to investing in gold to mitigate risk over the long run.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

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