Clipped from: https://www.thehindubusinessline.com/opinion/editorial/deceptive-sheen/article70452869.ece
Gold, silver rally alongside financial assets, a warning sign
The rally in precious metals may very well continue into 2026 | Photo Credit: brightstars
Rarely do precious metals rally to new highs at a time when economic growth is strong and there’s a bull run in stocks. But 2025 proved an exception. The world economy is expected to close the year with a healthy 2.7 per cent growth despite US tariff uncertainty. Q3 GDP growth from the US (4.3 per cent growth), China (4.8 per cent), Eurozone (0.4 per cent) and India (8.2 per cent), all exceeded forecasts. The global stock market rally acquired new legs with the US S&P 500 gaining nearly 18 per cent, Nikkei 225 26 per cent, Hang Seng 28 per cent, FTSE100 20 per cent and the Nifty50 over 9 per cent in 2025. Still, gold and silver handily outperformed stocks with dollar returns of 66 per cent and 158 per cent respectively, till date.
Precious metals attracted safe haven buying despite healthy growth and upbeat markets for four reasons. One, with Trump’s volatile trade and diplomatic policies, the usually resilient US dollar depreciated this year, with the Dollar Index slumping 9.6 per cent. Worries mounted about unsustainable sovereign debt levels at the US and other advanced economies, prompting central banks to diversify away from US treasuries into gold. Two, policy rate cuts trimmed returns on treasury bills and bonds making gold more attractive. Three, by end of 2025, extreme concentration of stock market gains in AI-themed stocks fanned fears of a bubble burst, prompting investors to seek refuge in precious metals. Four, advanced economies oblivious to the loss of confidence in gilts, were preparing for another bout of Quantitative Easing in 2026. Currency debasement fears are propelling gains in hard assets such as gold, silver and industrial metals.
The rally in precious metals may very well continue into 2026. This can have a mixed impact on the domestic economy. On the positive side, gains in precious metals translate into a significant wealth effect for Indian households because of their large hoard of bullion. While they do not sell bullion except when in distress, households are increasingly pledging it for loans, enabling monetisation of idle bullion holdings. This is evident from the gold loan books of Indian banks expanding 128 per cent the past year. Other official attempts at monetising household gold have either failed or backfired on the government, with Sovereign Gold Bonds proving a costly form of borrowings. Therefore, monetisation through loans needs to be encouraged — with prudential lending norms in place.
On the flip side, policymakers need to worry about the rising flows into gold and silver ETFs (Exchange Traded Funds). Traditionally, Indian jewellery buyers cut back on their purchases when prices soar, but the emerging class of ETF investors chase returns. This calls for vigilance over a surge in imports as gold and silver prices soar. The rally in precious metals is also a warning to retail investors that they need to lower their return expectations and derisk portfolios in 2026.
Published on December 30, 2025
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