The Gold Rush of 2025

Be fearful when others are greedy and be greedy when others are fearful. - Warren Buffet

Peering into the chaos

I don't need to tell you how gold has performed in the past few years. It has outperformed all major equity markets across the world in the 21st century [1]. It has given ~50% return over the past year, ~32% over the past 3 years, and ~17% over the past 5 years. There is euphoria in the market, people are not only investing more money into gold seeing the enormous returns but are also pledging that gold for more gold loans than ever before [2].

Gold has beat all developed markets in the 21st century. [1]

The same story continues with emerging markets. [1]

Gold has seen very less downside volatility in the recent years. In the past, the maximum drawdowns (the fall from all time highs) have exceeded more than 40-60% sometimes. But ever since Nov '22, the maximum drawdown has been not more than 8% [2]. New investors in gold haven't seen the turbulence, they are on a rollercoaster that only goes up.

So, what's the actual story behind gold?

The uphill ride of gold in recent years [2]

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What is gold anyway?

A person may not like someone else's religion, but he'll accept his gold. - Robert Kiyosaki

Gold has been revered for as long as humans have been greedy. We like shiny things, especially when it does not rust or fade. For thousands of years, we have sought gold, plundered countries and civilisations over it. An alien with zero context, looking back at all the bloodshed and hardships because of it, would have to think it is a metal that provides immortality. It’s not surprising that someone actually tried (the Chinese [3]) — but alas, it didn’t work. The aliens would be quite surprised to know that it has barely any utility at all.

Then why all this hoo-ha?

What gives value to gold?

Only history can explain that.

Gold has an attractive lustre to it, with soft, malleable properties that has attracted humans for millennia. Ancient India used gold for medicinal purposes in Ayurveda [4]. The Incas believed gold was the sweat of the sun. The Greek made humongous statues out of it. And King Solomon plated his temple with it. So, the fascination of gold isn't limited to 1 region, it's inexplicably universal.

And that led to gold becoming one of the first forms of real money in the world - something that doesn't have real utility, but is divisible, tangible and can be exchanged for other goods. It built on the modern belief of money, but there wasn't one central authority controlling it. The transition from barter to cattle to gold was prominent across the world in various different regions. From the Byzantines to the Islamic Caliphate to the Turks, gold became a way to get goods. This led to gold becoming a de-facto sign of wealth in Europe especially. The start of the British Empire arguably is based off of procuring (more like looting and plundering) vast amounts of gold to pay off debts and bolster their navy [5].

A bank note in United States - redeemable in gold coins [6]

The concept of money was always inspired and deep-rooted in gold. Banks in the 1800s across North America and Europe started accepting gold to store, and started offering bank notes. These bank notes could be redeemed anytime to withdraw the gold if needed [6]. A simple concept in principal, until the people start panicking and want to redeem all of their money at once (depicted below) [9]. And so, in various countries around the world the government realised that not having a centralised authority that could control the banking system is unsustainable for the long term. Thus, this was the birth of Central Banks around the world.

The Panic of 1907 - Everyone wanted their gold back, not bank notes [8]

Birth of the True Gold Standard

These Central Banks started controlling how much gold should be in reserve so that each note had a backing of gold behind it. This, in formal terms, is called as a currency being pegged to gold.

But, there is a big problem still lurking. Economies are complex. A recession is when unemployment rises, consumer spending falls, businesses make less profit and thus invest lesser. It's evident how this can be a perpetual cycle. One way to possibly interfere in this circle is to actually infuse more money in the economy, helping people spend more by printing more. This spending could be through infrastructure projects, subsidies or free cash giveaways even. But, if money is still pegged to gold - people can come in and keep exchanging it for gold draining a country's gold reserves. This isn't an easy problem to solve.

This isn't any hypothetical situation. This was the exact situation caused during the Great Depression in the USA. The central bank of America - the Fed did the exact opposite of increasing cash flow in the economy. They raised interest rates. This prolonged the Great Depression more than it should have. But we came out with 1 valuable lesson.

The Birth of Modern Money

Central Banks realised as long as money is pegged to gold - countries will forever be constrained by the amount of gold they have. So, they did something drastic. Currency will no longer be pegged to gold, it will be free floating (there was the Bretton Woods system along the way, but we will dive down that rabbit hole on some other day).

So, the concept of money has taken a radical jump in belief from what it used to be. Cattle and barter trade required the least amount of belief - each item traded had the most utility an item could possibly and could be measured. Gold didn't have utility on its own, but was scarce and limited. Bank notes in exchange for gold required even more belief. Belief that the bank would return gold when needed if given bank notes. And we come to today, where we place the most belief in the banking system. We place most of our hard earned money in bank accounts, Fixed Deposits and securities. We spend and earn in money, and we would have nothing tomorrow if the bank stopped taking our notes tomorrow. Our entire banking system is built on immense and collective belief.

How money evolved from real units of utility to imaginary units of belief [11]

Why this long explanation on the history of gold and money?

Because that's the biggest factor that dictates the price of gold. Gold in and of itself has little industrial usage. If we were to place all the gold ever mined together, it would form a cube that would be 22m long [12]. It's a small number when you consider the amount of the yellow metal you see around you.

When you look at the distribution of how gold is used and stored today, things start coming into perspective. Around 45% of all the gold in circulation is in jewellery, 15% in other uses (like industrial uses and dentistry), 22% in bars and coins and the last 17% being stored in central banks around the world [12]. So, when you consider that combined nearly 40% of the gold ever mined is held for financial security you start to realise that gold has a fickle nature to it. Gold has value cause we as humans love gold and have loved gold for millennia.

Gold is very scarce, and its uses scarcer [12]

What's the value of gold?

The intrinsic value of an asset is determined by the cash flows you expect that asset to generate over its life and how uncertain you feel about these cash flows. - Aswath Damodaran

That's a quote from one of the the people I look up to in finance. He has been teaching a course on "Valuations" for a couple of decades now. He himself says that valuing an asset is more of an art than a science, there aren't exact formulae to derive a fixed value. It's subjective and requires intuition and experience. So, let's first understand the difference between price and value.

What is price vs. value?

The price of something can be whatever the supply and demand for that asset is deemed by the people participating. It does not have to based on educated estimates. It doesn't even have to be rational or coherent. It's ultimately people buying and selling.

Value, on the other hand, is what something is truly worth - not just in the eyes of the market at a given moment, but in terms of its underlying utility, durability, and ability to generate benefit over time.

It’s rooted in fundamentals: what the asset can produce, how it improves life, or what it contributes to a larger system.

So, when we look at his opinion on gold, I wasn't surprised to see a similar idea conveyed.

...what is the "intrinsic value" of gold? In my view, gold does not have an intrinsic value but it does have a relative value. For centuries, gold (because of its durability and relative scarcity) has been an alternative to financial assets (that are tied to paper currency). - Aswath Damodaran [13]

I don’t believe we should invest in gold based on the assumption that it possesses inherent value. In tangible terms, it really doesn’t. There are better, more rational reasons to invest in gold than the notion of intrinsic value, for the historical negative correlation with the equity and paper currency markets and the fact that gold as an asset has survived for centuries with great conviction.

A method used by DSP Netra [1] to value gold. While it does signal that gold is overpriced as of October, it is a very simplistic model that only assumes the demand and supply of the liquid money (M2) in the US and EU.

Even using the simple model outlined above, the price of gold hadn't ever cross this theoretical value. Now, it has for the first time in history. [1]

So, why should you invest in gold?

Gold is the only currency that transcends borders, politics, religions, and race. - Anonymous

Therefore, the biggest backing that gold has is the collective belief we have in it. Centuries have passed by and we haven't gotten bored of it. We crave gold even today.

Fiat currency (more commonly known as paper money) has always been backed by gold. Previously, it was directly interchangeable with it in nationalised and central banks (the gold standard). When confidence in governments and banks faltered, gold would be redeemed in exchange and consequently prices of the metal went up.

Today, money is backed by gold in vaults by central banks. It's not directly interchangeable. But when confidence in the government falters, people exchange paper money for gold, and thus, bumping the prices up.

Hence, value of gold has always had a negative correlation with the belief in central banks and the government. That's one of the reasons why in 2025, as confidence in the government of the strongest nation in the world - the United States of America was shaky, the prices of gold skyrocketed.

So - gold is a hedge against the systems setup in the world. A hedge against inflation.

How do we invest?

The possession of gold has ruined fewer men than the lack of it. - Thomas Bailey Aldrich

And that is what we saw in 2025. We received the most amount of interest in investing in gold as a commodity in and around September 2025. For reference, gold had already given more than 100% returns in about 1.5 years. In our framework, just in the basics, we never and we mean never, will jump into an asset at such a point in time. We refrain from jumping on a train that is already going at a 100 km/hr because we are unsure how much fuel is actually left to sustain such pace.

Second is that we are deep believers in Equity - owning a piece of a business that grows for us to generate lasting wealth. Equity is a yielding asset that is built off of hard work in a civilisation. Gold is a non-yielding asset built on top of scarcity. We believe that owning businesses is what will build India, and owning a piece of them is what has helped us build wealth for us.

Third is what we have learnt from history. In the early 1980s, oil prices surged to record highs - peaking at around $35 per barrel, equivalent to nearly $134 today - sparking widespread fears that we would run out of oil by the early 2000s. This perceived scarcity and intense demand drove rapid technological advancements and innovation, enabling us to unlock vast new oil reserves in regions like Alaska and the North Sea that were once considered inaccessible. After studying history, one thing is clear: humans are remarkably perseverant and resourceful, especially when driven by necessity and the pressures of greed. So, if gold continues rallying, there may just be enough incentive and cost justification to find more efficient ways to mine the reserves inaccessible to us currently. If this happens, it could possibly hamper the way gold operates today.

So, we invested our money and our client's money in 2 ways.

We promoted Multi Asset Allocation Schemes for the past 2-3 years. These schemes provide a way to do prudent allocation in each client's portfolio, without having a need to time the markets when it comes to the asset classes. This helped us 15-20% returns without having the volatility of equity.

Performance summary of Nippon India Multi Asset Allocation Fund - Regular Growth [14]

Performance summary of ICICI Prudential Multi Asset Fund - Regular Growth [15]

Second, was not to allocate more than 10-15% of one's portfolio to gold. The reason is simple - short term gains blind people to historical facts. Gold's returns in INR before 2020 are shown below:

Period (as of 2020)	Gold Returns (in INR)
10 Year	10.15%
20 Year	12.77%
30 Year	9.50%

And even when you take the rally from the past 5 years in consideration, the returns don't vary drastically.

Period (as of 2025)	Gold Returns (in INR)
10 Year	14.53%
20 Year	14.35%
30 Year	10.83%

For reference, when you take the 10 year CAGR into account without active stock picking (index), the midcap and smallcap indices have easily beaten the returns given by gold.

Index	Returns (CAGR in INR)
BSE Smallcap	16.9%
BSE Midcap	16.0%
NIFTY 100 (Large Cap)	12.9%

One thing to keep in mind that historically gold has lower volatility than equity, so it has provided better downside protection. But, for long term allocation it might not be prudent to go overweight on gold. It's important to not let greed drive investment decisions. Stay disciplined, stay diversified, and make choices that align with your goals and time-horizon.

References

[1] DSP Netra

[2] Why gold loans are shining in a subdued credit market

https://commons.wikimedia.org/w/index.php?curid=29136523[3] Cambridge Archaeological Journal

[4] https://pmc.ncbi.nlm.nih.gov/articles/PMC8642718/

[5] What happened to the Spanish gold from the Incas?

[6] By Continental Banknote Company - Image by Godot13

[7] Gold Certificates in the USA

[8] By Soerfm - Own work, CC BY-SA 3.0

[9] The Panic of 1907

[10] The Federal Bank actually already existed - but the powers we know it possesses today were given to it after a series of financial crises in the early 1900s.

[11] Gold Explained, Finally

[12] How much Gold

[13] Thoughts on Intrinsic Value by Aswath Damodaran

[14] Nippon India Multi Asset Allocation Fund fact sheet

[15] ICICI Prudential Multi Asset Allocation Fund fact sheet

Disclaimer

This article is for information only. I am an AMFI-registered Mutual Fund Distributor (ARN-342247). The views here reflect my own thoughts and may change. Investments in gold, commodities or funds carry risks — past performance does not guarantee future results. Please do your own research and/or consult a qualified advisor before making any investment decision. My perspective here was general and was not aimed to provide personal financial advice.