- Gold's 65% surge in 2025, its best year since 1979, was a structural re-rating, not a popped bubble.
- Central banks, not jewellery buyers, now set the price: 863 tonnes bought in 2025, the 16th straight year of net buying.
- “Peak gold” supply can't expand fast enough to meet strategic demand, so the adjustment comes through price.
- The pullback to ~$4,358 cooled positioning without breaking the engine, most banks still target $6,000+.
- For rupee-based investors, a weak rupee quietly magnifies gold's dollar return.
- It is easy to forget, watching gold trade around $4,358 an ounce on 16 June, roughly 22% below its peak, that the metal has just lived through one of the great runs in its history. In 2025 gold rose 65%, its best year since 1979, set more than fifty record highs along the way, and carried the price to an all-time high near $5,589 in late January 2026 before settling into a consolidation. The headline writers have moved on to the pullback. We would point in the other direction, at what drove the run in the first place, because that part has not changed. The 2025 surge was not a speculative mania that has now popped; it was a structural re-rating of gold by the most price-insensitive buyer in the market, and that buyer has not gone home.
The buyer that changed everything
For most of the past century, gold’s price was set at the margin by jewellery demand and Western investors reacting to real interest rates. Since 2022, a third force has taken over: the world’s central banks. Official-sector net purchases ran to 1,136 tonnes in 2022, about 1,051 in 2023 and roughly 1,045 in 2024, three consecutive years above a thousand tonnes, and even the “slower” 2025 still saw 863 tonnes bought, the sixteenth straight year of net buying and nearly double the 2010–2021 average of around 473 tonnes a year. The first quarter of 2026 added another 244 tonnes, and the buying resumed in April with a further 17 tonnes, led by Poland, whose reserves have climbed to about 595 tonnes, and China, whose central bank has now bought for eighteen consecutive months. The motive is strategy, not trading. After the freezing of Russia’s dollar reserves in 2022, a lengthening list of nations is quietly diversifying away from the dollar, and gold is the only reserve asset that carries no other country’s liability. The share of reserves that the BRICS-plus bloc holds in gold has climbed from about 11% in 2019 to over 17%. In the World Gold Council’s 2025 survey of central banks, a record 43% said they intend to add gold in the year ahead, 95% expect official gold reserves to keep rising, and 73% expect the dollar’s share of global reserves to fall further. This is demand that buys more when prices dip and keeps buying when they rise, the opposite of a bubble.
Supply that cannot answer back
On the other side of the ledger, the supply of gold is remarkably inelastic. Mine production reached about 3,672 tonnes in 2025, a record, but it has grown at less than 1% a year for a decade, the industry’s own shorthand for this is “peak gold.” Together with recycling of 1,404 tonnes, total supply crossed 5,000 tonnes for the first time ever in 2025, and yet even that record could barely keep pace with demand. Tellingly, recycling rose only 3% despite a 44% jump in the average price, the scrap drawer did not flood the market the way it has in past rallies. The arithmetic is simple and powerful: when a wave of new, strategic demand meets a supply base that physically cannot expand quickly, the adjustment has to come through price. That is exactly what 2025 was.
The macro wind at its back
Around this structural core sit the cyclical tailwinds, and most still blow the same way. The 2026 West Asia war and the Strait of Hormuz crisis handed gold a fresh risk premium, it jumped above $5,200 in the days after the strikes. Beneath that, the deeper story is monetary: US federal debt passed $39 trillion in 2026 and is growing by roughly $2 trillion a year, and in a world of stretched sovereign balance sheets, an asset that cannot be printed has obvious appeal. Tellingly, gold’s old inverse relationship with the dollar has weakened, its 30-day correlation with the dollar index has slackened to around –0.25 from a typical –0.45, exactly what you would expect when the marginal buyer is a central bank diversifying reserves rather than a trader playing real rates. Demand told the story in 2025: total demand value hit a record $555 billion, up 45%; physical bar and coin demand reached a twelve-year high of 1,374 tonnes; and gold ETFs added back 801 tonnes after years of outflows. The momentum carried into 2026, first-quarter demand was worth a record $193 billion, up 74% on a year earlier, with Chinese retail demand alone a record 207 tonnes. Even the recent wobble is visible in the flows: gold ETFs saw modest outflows of around $2 billion in May 2026 and holdings of about 4,121 tonnes sit just shy of February’s record 4,176 tonnes, a pause, not an exodus, with year-to-date flows still positive at roughly $17 billion.
What the forward case looks like
None of this implies a straight line, gold has already shown it can fall more than 20% from a peak in weeks. But the striking thing about the sell-side after the consolidation is how far above today’s price its targets still sit. Bank of America holds a twelve-month target of $6,000; UBS has moved to $6,200; Wells Fargo sees $6,100–6,300; JPMorgan models around $6,000 for the fourth quarter of 2026, rising toward $6,300 by the end of 2027. Even the more conservative houses sit near or above $5,000, and Goldman Sachs has called the balance of risks “asymmetrically skewed to the upside.” The more aggressive scenarios, UBS at $7,200 on geopolitical escalation, Bank of America at $8,000 by 2027 on accelerating de-dollarisation, show where the tail lies. Just as important, the market is not crowded: speculative net-long positioning on COMEX is a fraction of past extremes, and private investors still hold an estimated 0.5% of their assets in gold. That is room, not froth.
The India lens
For an Indian investor, gold’s case is doubly compelling, because a falling rupee quietly magnifies the return. Gold that rises in dollars rises further in rupees: retail 24-karat prices touched a record near ₹1,78,850 per 10 grams in late January (MCX futures briefly traded close to ₹1,93,000), and even after the global pullback, gold near ₹1,51,500 per 10 grams in mid-June was still up roughly 48% on a year earlier. On the days global gold fell, the weak rupee cushioned the drop. India’s own behaviour reflects the shift from ornament to asset, in the first quarter of 2026 investment demand jumped 54% while jewellery fell, and gold-ETF assets under management surged about 191% over the financial year to around ₹1.71 lakh crore, with January 2026 alone drawing a record monthly inflow of roughly $2.5 billion. The vehicles have changed too: with Sovereign Gold Bonds effectively paused since February 2024, ETFs, gold funds and digital gold have become the cleaner ways to hold it, free of making charges and storage worries. The Reserve Bank itself owns about 880 tonnes, the same diversification logic, practised at home. The standard guidance that gold deserves a 5–15% strategic place in a portfolio looks, on this evidence, less like caution and more like common sense.
The honest caveats
A constructive view is not a blind one. Gold’s 22% slide from its January high is a reminder that crowded enthusiasm can unwind fast, and the clearest threat to the structural story is a genuine re-acceleration of US inflation that forces the Federal Reserve back into hiking and lifts the dollar, the one combination that has historically hurt gold. In India, the steep rise in the import duty to 15% in May 2026 adds a domestic drag and can dent jewellery demand. And after a 65% year, some give-back is natural. But none of these alters the central fact: the metal is being accumulated by buyers who answer to strategy rather than price, against a supply base that cannot grow to meet them.
The takeaway
Strip away the month-to-month noise and gold’s story is unusually clear. Its 2025 run was not a bubble inflating but a structural re-rating, led by central banks rebuilding the monetary order around an asset no government can debase, against a supply that has effectively peaked. The recent pause has cooled positioning and reset expectations without touching any of that. With the dominant buyers still buying, the supply still stuck, and most of the analyst community still pointing toward $6,000 and beyond, the weight of the evidence sits firmly on the constructive side, and for a rupee-based investor, the currency does part of the work for you.
It is not investment advice or a recommendation to buy or sell gold or any security. Prices, forecasts and analyst views are reported for context and can change rapidly. Please consult a registered financial adviser before making any investment decision.
