Why is Gold Price Increasing in India? Reasons Behind the Rise: October 2025

Gold prices has hit a record all-time high ahead of Dhanteras surpassing the ₹1.26 Lakhs per 10 grams mark on Multi Commodity Exchange (MCX). Experts are attributing this surge in gold prices to various global factors, including the US government shutdown, global economic uncertainty, currency fluctuations and rising central bank buying trends among others.

During recent years, the price of gold in India has surged sharply, driven by global market trends and a shift of investor sentiment. Read this blog to delve deeper into how each of these factors support higher gold prices in India and know if this is the right time to invest in this safe haven asset.

Why Gold Rate is Increasing?

Gold prices in India are rising due to a combination of global and local factors. Here's a complete breakdown of how each of these factors are contributing to the price of gold:

US Government Shutdown

The US government shutdown is one of the leading causes behind rising gold prices in India. Now in it's second week, it has happened for the first time in seven years. The aftermaths of this include complete suspension of non-essential services.

This government shutdown has now led to a complete halt of non-essential services like visa processing and immigration processes leading to tremendous global economic uncertainty. Essential services like border patrol are being continued without any funding.

In addition to the aforementioned, there is a strong expectation of further US Federal Reserve rate cuts which will further reduce the yield from conventional investment instruments like bonds. As such, investor interests are gradually shifting to the yellow metal.

Global Economic Uncertainty and Geopolitical Tensions

Gold prices tend to rise whenever there is a global economic uncertainty as investor preferences shift from conventional markets to this safe haven asset. The ongoing political unrest in France and the recent change of the Japanese leadership are some key reasons driving the gold price rise.

Japan's new leadership under Sanae Takaichi is deemed to support aggressive spending and ease monetary policy leading to a falling Yen and lower bond yields. On the other hand, the ongoing political turmoil in France, clubbed with the long standing war between Russia and Ukraine is currently leading to major global economic and political uncertainty.

Currency Fluctuations

The Federal Reserve rate cuts have already weakened the US dollar while another rate cut is expected soon. A direct consequence of the weakening US dollar is a shift of investors toward the yellow metal. In addition, the Japanese Yen is also facing a downfall following the recent shift of the leadership. Such global currency fluctuations are also major contributors to rising gold rates.

Central Bank Policies

Central banks accumulate gold to diversify their holdings away from traditional currencies. These large-scale institutional purchases create significant demand in the global gold market, supporting higher prices.

As per reports, the People's Bank of China (PBOC) has kept on adding reserves consecutively for 11 months till at least September 2025. China's central bank has reportedly purchased 1.24 tonnes of gold this September alone while 39.2 tonnes of gold has been accumulated by the PBOC since November 2024.

Although on a smaller scale, but the Reserve Bank of India have also kept on augmenting gold reserves. As per reports, the RBI's reserves stand at approximately 770 tonnes second only to China and the US in Asia.

Demand for a Hedge

The imposition of tariffs has increased trade tensions between the USA and India, and emphasised the relevance of gold as a safe-haven investment in times of economic crisis. A similar trend is also seen when inflation rises and erodes the purchasing power of traditional investments, though inflation is not currently a cause behind the rising rates.

Strong Domestic Demand

India's large population views gold as an essential part of celebrations and religious ceremonies, and as a traditional store of wealth. Whether festival time or wedding season, there's a natural rise in demand, which can increase the price in return. In April 2025, gold hit ₹1 Lakh/10 grams ahead of Akshaya Tritiya, an auspicious day for purchasing gold in India.

Import-Related Expenses and Duties

India imports approximately 70-80% of its gold consumption, making it heavily dependent on international markets and import costs. In the fiscal year April-March 2024-25, inbound shipments increased by 27.27%, reaching a total of $58 billion.

Import duties, customs charges, and logistics expenses add significant premiums to the base gold price. Any increase in import tariffs or changes in government policy regarding gold imports directly impact domestic pricing.

Also Read: Understanding the Impact of Gold Loan on Your CIBIL Score

Should You Buy Gold or Sell Now?

As per reports, the price of gold has been deemed to remain cautiously bullish during the next 12 to 18 months. However, there may be short term price corrections. Hence, it is worthwhile to make an informed decision after considering associated factors like monetary policies, inflation data, geopolitical developments etc.

For those considering to capitalise on the ongoing gold rush, balancing short-term risk of price corrections with the long term potential that rising gold prices have to offer is of the utmost importance with instruments like exchange traded funds etfs.

Gold ETFs provide a easily accessible exposure without having to purchase physical gold while you can capitalise on the price rise. However, proper risk management is imperative when investing in gold ETFs as experts have warned about high price volatility and fluctuation.

Effect of Gold Prices on the Indian Economy

The surge in gold prices has implications that affect both the Indian economy and personal finances. These are some of them:

• Current Account Deficit: India imports almost all its gold. So, a rise in the price of gold inflates the country's import bill, which further widens the current account deficit.

• Shifting Savings Patterns: Indian families have considered gold as a safe store of value for generations. A surge in these gold prices may divert savings from other financial markets to more physical gold, limiting broader economic development.

• Boost to Gold Loan Market: Higher gold valuations mean individuals can access larger loans against the same quantity of gold. NBFCs experience increased demand for gold loans when prices are high, benefiting both lenders and borrowers seeking quick liquidity.

• Inflation and Retail Pricing: As gold is of essential value in Indian households, the cost of the jewellery production and sale keeps rising. This further contributes to inflation in consumer goods, especially around festival and wedding seasons.

Also Read: How Raw Gold is Turned into Pure Gold: 5 Simple Steps

Why is Gold So Valuable?

Here are some reasons why gold is so valuable in India:

• Cultural Importance

Gold for most Indian families is not simply an investment; it carries value as a cherished asset and is considered a mark of a family's social stature. It's an integral part of Indian culture to give gold during weddings and festivals, and this drives the demand.

• Scarcity and Tangibility

Gold, unlike currency, cannot be produced at will. The extraction of gold is costly, which contributes to its rarity. Its physical nature and universal recognition as a store of value make it a trusted asset across countries and cultures.

• Liquidity and Collateral Value

Gold's liquidity makes it easy to sell or pledge for a loan throughout India, making it both a secure and flexible asset. This is the reason why NBFCs provide gold-backed loans to serve diverse financial requirements.

• Safe Haven in Uncertainty

Gold is an asset that investors turn to during economic or political turmoil. Gold price rise or even tends to retain its value when conventional assets (like stocks) falter.

Also Read: How to Use a Gold Loan for a Medical Emergency: A Simple Guide

To Conclude

A combination of factors influences gold prices in India, and knowing these factors enables you to make more assured decisions, regardless of whether you see gold as a cultural custom, a safety net for your finances, or collateral for a loan. Being informed is essential, particularly if you are thinking about taking out a Gold Loan, investing in gold, or purchasing it. A Gold Loan from Poonawalla Fincorp offers you up to 75% of the gold value, quick approval, flexible repayment tenure, and safety and security of your gold, so that you have a stress-free borrowing.

Frequently Asked Questions

Why are gold prices rising in India?

Gold prices are rising due to a number of factors including the US government shutdown, global economic and political uncertainty, currency fluctuations and central bank policies among the top few factors.

How does gold hedge against inflation?

When inflation occurs, it causes the erosion of an asset's purchasing power. Gold, on the other hand, remains capable of either retaining its nominal value or gaining it. This is how it hedges against inflation.

Do changes in government policy affect gold prices?

Yes, higher import duty, GST changes, or import restrictions on gold will instantly drive up gold prices in India, irrespective of any international trends.

How do international occurrences work on gold prices in India?

Events like war, economic crisis, or pandemic create global uncertainty. This creates a higher demand for gold and drives up prices in India.

Does a surge in the gold price bring greater attraction to gold loans?

Yes, rising gold prices mean a higher loan amount can be obtained for the same gold jewellery, thereby making gold loans an attractive and logical option for funding.

Is gold a sound investment at current prices?

Depending on the current scenarios, gold remains a safe option for portfolio diversification with options like gold ETFs and an inflation hedge. Yet, one must assess one's financial objectives thoroughly, opting for a trusty expert's opinion before proceeding with a buy decision

Can festival demand drive gold price rise?

Yes, certain periods and festivals, such as Diwali or prior to peak wedding season, see huge demand and usually translate to a short-term hike in retail gold prices.