Gold's allure is undeniable, especially in times of global uncertainty. Recently, the MCX spot price of gold touched a remarkable Rs 88,288 per 10 grams as on (March 19, 2025), marking its third consecutive monthly gain. According to Bloomberg data, this year alone, gold prices have surged by 16.3%, following a 27.24 percent increase in 2024.
Internationally, gold has surpassed the significant US$3,000 per ounce threshold, with brokerages such as Macquarie predicting further gains. This begs the question: should investors jump into gold ETFs and mutual funds, or is this a case of FOMO (Fear of missing out) leading to hasty decisions?
Drivers Behind the Gold Surge
Gold's impressive 15-month rally warrants further examination as it's currently the top-performing asset class, driven by geopolitical and economic uncertainties worldwide. Gold's "safe haven" status is reinforced; as unpredictable US policies, particularly on tariffs, add to global volatility and further fuelled the flight to safe haven assets.
A major factor is the record-breaking gold buying by central banks, aiming to diversify reserves and reduce reliance on single-currency assets like the US dollar. According to data from the World Gold Council central banks have bought over 1,000 tonnes of gold every year since 2022 which is double of what they acquired annually 10 years ago.
This trend is expected to persist, keeping gold prices on an upward trajectory in the near to long term. The combination of geopolitical tensions and central banks diversifying away from US Treasuries are key drivers. In India, traditional demand for jewellery, especially during wedding season, adds to the surge.
This structural shift in gold demand, driven by policy uncertainty, global conflicts, central bank purchases, and retail interest in India and China, may continue. At Baroda BNP Paribas MF, we anticipate gold prices will maintain an upward bias, though some stabilization is expected.
Investing in Gold Funds: Is Now the Time?
For long-term investors, gold-related assets are always a viable option. Systematic Investment Plans (SIPs) are highly recommended to mitigate short-term price volatility. Gold funds, including index funds, exchange-traded funds (ETFs), and fund of funds, can provide portfolio stability during macroeconomic uncertainty and act as an inflation hedge.
What to Do With Gold Profits?
Investors can maintain a diversified portfolio aligned with their risk tolerance, investment horizon, and financial goals. Periodic portfolio reviews are crucial to ensure alignment. Financial planners advise sticking to long-term asset allocation, as it's a key determinant of portfolio returns. Rebalancing, if necessary, may be done with the guidance of a financial advisor. Gold is generally considered a long-term investment asset class and be approached accordingly.
Key Takeaways:
Gold prices are soaring due to global uncertainty and central bank buying.
Long-term investors can benefit from gold's stability and inflation hedge.
SIPs are ideal for managing gold's price volatility.
Maintain a diversified portfolio and consult a financial advisor for rebalancing.
Gold is a long-term investment asset.
(The author is Senior Fund Manager at Baroda BNP Paribas Mutual Fund. The views are personal.)