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Goldman Sachs expects gold to reach $3,150 per ounce in the international market by December 2025, up around 19.1 per cent from its current level of $2,645, according to a recent report in Business Standard.
Domestically, gold is trading at Rs 76,018 per 10 grams after delivering a remarkable 21.9 per cent return in the past year.
The question is whether it can replicate this performance in the year ahead.
Central bank buying may persist
Several factors continue to support gold demand.
“The main drivers of this rally have been central bank buying and physical demand, not investment or speculative flows,” says Vikram Dhawan, head commodities and fund manager, Nippon India Mutual Fund.
Robust demand from Chinese retail investors has been a significant contributor.
Central banks are expected to persist with gold purchases amid macroeconomic (high debt levels in the United States, for instance) and geopolitical risks.
Gold exchange-traded funds (ETFs) may also see increased inflows.
“With most global investors being underweight on gold, many might allocate to it to diversify their portfolios,” says Dhawan.
According to Manav Modi, senior analyst, commodity research, Motilal Oswal Financial Services, interest rate cuts in the US could also boost gold’s appeal.
Geopolitical tensions remain high.
“The conflict in West Asia has the potential to disrupt oil supplies and cause an increase in inflation, which would boost gold demand,” says Deveya Gaglani, senior research analyst, commodities, Axis Securities.
US-China trade friction could also drive investors into this safe-haven asset.
A depreciating rupee has the potential to enhance gold’s domestic return.
“The rupee, which has been stable for two years, is now trading at lifetime lows against the dollar and could depreciate further,” says Modi.
High prices could be a deterrent
High gold prices, however, have the potential to dampen demand.
“Whenever there is a sharp spike in prices, as happened over the past year, demand tends to lag, as retail investors wait for better price points,” says Dhawan.
Central banks, too, might adopt a similar strategy.
Improvement in US GDP figures, easing of tensions in West Asia, and stable or rising interest rates in the US are other factors that could hurt gold prices, according to Modi.
Oversupply from increased mining output or reduced jewellery demand, particularly in key markets like China and India, could exert pressure on gold’s price, according to Gaglani.
Competition from equities and cryptocurrencies could divert investor interest.
Returns may be subdued
Experts believe the extraordinary returns of the past year are unlikely to continue.
“While gold’s long-term story remains intact, we could see some consolidation in the near term,” says Dhawan. Modi anticipates a 5-7 per cent correction.
What should you do?
New investors should gradually build a 5-10 per cent allocation to gold.
“Those planning to use gold in a wedding should also begin accumulating it,” says Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment advisor and founder, SahajMoney.com.
However, he warns that the holding period must be three years or more for those entering now.
Dhawan suggests that existing investors maintain a consistent allocation, irrespective of whether they are in a risk-on or risk-off environment.
Gaglani advises that long-term investors accumulate gold if there is a 5-7 per cent price correction.
To select a gold ETF, Kumar advises focusing on low expense ratio, low tracking error, and high trading volume.
