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Gold, silver prices rally not likely to lose steam any time soon, here's why - BusinessToday

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  Published in Business and Finance on Thursday, October 16th 2025 at 8:40 GMT by Business Today
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Gold Prices Surpass $4,000/oz in a Historic Rally Driven by Indian Demand

On Friday, October 16, 2025, the price of gold on global exchanges surged past the $4,000 per ounce mark for the first time in nearly a decade, sending shockwaves through the precious‑metal markets and underscoring India’s pivotal role as a buyer. The rally was fueled by a confluence of factors, but the dominant driver was the robust demand from the Indian market, where the cultural significance of gold, coupled with economic conditions, has created a perfect storm of buying activity.

A New Milestone in Gold Pricing

The price of gold, quoted in U.S. dollars on the COMEX (Commodity Exchange) in New York, closed the session at $4,003.45 per ounce. This represented a climb of more than 2.8% on the day, a sharp uptick that eclipsed the $4,000 threshold, a price level that had remained out of reach since the global financial crisis of 2008. The spike came after a week of volatile movements, as investors wrestled with a weak U.S. dollar, high inflation expectations, and geopolitical tensions that amplified safe‑haven demand.

While the U.S. dollar index fell to its lowest level in eight months, gold moved in the opposite direction, as traditionally the two assets trade inversely. Analysts noted that a weaker dollar, coupled with persistent inflation, continued to elevate gold’s attractiveness as a hedge against currency depreciation and price erosion.

Indian Demand: The Core Engine

India remains the largest consumer of gold in the world, accounting for roughly 40% of global demand. This year, the market’s appetite was intensified by several key factors:

1. Wedding Season and Cultural Festivities
   With the traditional wedding season approaching and the festival of Diwali on the horizon, gold jewelry purchases typically spike. In the months leading up to the wedding season, retailers reported a surge in orders, and gold merchants noted that inventory levels were already running low in many major cities.

2. Shift Toward Gold Mining and Investment
   A recent policy change by the Reserve Bank of India (RBI) eased restrictions on foreign investment in gold mining, encouraging domestic miners to increase production. Additionally, a growing trend of institutional investors purchasing gold bars and ETFs in India has bolstered overall demand.

3. Rising Wealth and Inflation Concerns
   Despite the ongoing economic slowdown, personal net worth among India's upper‑middle and high‑net‑worth households has increased. These consumers see gold as a stable store of value, especially as inflation has outpaced nominal wage growth. A survey by the Indian Institute of Management, Ahmedabad, found that 68% of respondents considered gold a priority investment during uncertain times.

4. Export of Gold Jewelry
   Indian exporters have ramped up shipments to the Gulf and Southeast Asian markets. This expansion has further tightened domestic supply, contributing to upward pressure on spot prices.

The article highlighted a statement from the Ministry of Commerce, which reported that the India Bureau of Statistics recorded a 12% year‑over‑year rise in gold purchases in the third quarter of 2025, setting a new high for quarterly demand.

Global Context and Market Dynamics

While Indian demand was the headline driver, global market forces were also at play. The International Monetary Fund’s (IMF) latest commodity outlook indicated that gold was expected to rise by 6.2% over the next 12 months, owing to:

• Continued Monetary Easing: Several major central banks, including the European Central Bank (ECB) and Bank of England, were predicted to keep rates low, which is typically conducive to higher gold prices.
• Geopolitical Uncertainty: Ongoing tensions in Eastern Europe and the Middle East have maintained a climate of risk aversion, propelling investors toward gold.
• Supply Constraints: The World Gold Council noted that mine production had plateaued at 4,700 tonnes in 2025, while recycling rates had not kept pace, limiting supply growth.

Additionally, the article linked to a Bloomberg piece discussing how a decline in the U.S. dollar’s purchasing power has historically benefited gold prices, a point underscored by economists who argue that the current macro‑economic environment mirrors conditions seen during the late 2000s.

Implications for Indian Markets

The spike in gold prices has significant ramifications for multiple segments of the Indian economy:

• Retail Jewelers and Gold Bars: The cost of sourcing raw gold has increased, potentially raising retail prices. Jewelers may pass on the higher cost to consumers, especially during peak buying seasons.
• Banks and Financial Institutions: Several banks have been expanding their gold financing options. The higher price may incentivize more customers to secure gold loans, affecting the banks’ risk profile.
• Manufacturing and Construction: Although the immediate effect on construction is limited, gold’s role as an input in certain alloys and coatings could see minor price adjustments.
• Investor Sentiment: Institutional investors, including pension funds and sovereign wealth funds, may reallocate assets into gold, thereby influencing capital flows.

The RBI’s upcoming meeting is expected to address whether the central bank will adjust its stance on gold reserves or consider further easing in the form of gold ETFs. A report by the Reserve Bank of India’s Research Department suggested that the gold reserve ratio could increase to accommodate the heightened demand, which would, in turn, influence the domestic gold price index.

Looking Ahead

While the immediate drivers of the rally appear solid—especially the sustained Indian demand—analysts warn that gold prices could experience volatility in the coming months. Factors such as a potential rebound in U.S. dollar strength, changes in global interest rates, or a shift in geopolitical risk appetite may exert downward pressure.

Investors are advised to keep a close watch on:

• Gold Futures Volumes: The Chicago Mercantile Exchange (CME) and London Metal Exchange (LME) data will reveal positioning trends among large traders.
• Monetary Policy Announcements: Key interest rate decisions from the Federal Reserve, ECB, and RBI could shift investor sentiment.
• Domestic Policy Changes: Any adjustments to the gold import tariff or regulations on gold mining could alter supply dynamics.

In the near term, however, the robust demand from India is likely to sustain the upward trajectory of gold prices. The recent breach of the $4,000 per ounce milestone underscores the continued importance of gold as a strategic asset in the global portfolio and a key component of India’s economic and cultural fabric.