Gold has long been a safe haven for investors, and recent insights from JM Financial’s Rahul Sharma suggest that the precious metal may not have reached its peak yet. With a potential for an additional 10% upside in the coming months, the dynamics surrounding gold prices are worth exploring in detail.
Current Market Outlook
In a recent analysis, Sharma indicated that while gold prices could extend by another 10% from current levels, the likelihood of a price or time correction thereafter is significant. This duality of potential growth and risk highlights the complex nature of gold as an investment.
Central Bank Purchases: A Key Driver
One of the most compelling factors influencing gold prices is the anticipated buying spree by central banks. According to Sharma, central banks are expected to purchase around 900 tonnes of gold in 2025, significantly higher than the pre-2022 average of 500–600 tonnes. Key players in this market include China, India, Poland, and Turkey, all of which are ramping up their gold reserves.
Sharma noted that global reserves currently stand at approximately 36,200 tonnes, constituting about 20% of total reserves. This substantial reserve acts as a price floor, limiting downside risks and supporting long-term gains for gold.
The Role of Gold ETFs
Gold exchange-traded funds (ETFs) have also seen a surge in demand, with inflows of 397 tonnes in the first half of 2025. This brings total holdings to 3,616 tonnes, reflecting a growing interest in gold as a hedge against economic uncertainties. Notably, Chinese ETF holdings have increased by 70% year-to-date, driven by geopolitical tensions, U.S. policy risks, and inflation fears.
However, Sharma cautioned that if risk appetite improves, ETF outflows could cap potential gains, making it essential for investors to stay vigilant.
The Impact of U.S. Federal Reserve Policies
The stance of the U.S. Federal Reserve is another critical factor influencing gold prices. Currently, the Fed funds rate is set between 4.25% and 4.50%. Market expectations suggest potential cuts of around 50 basis points by the end of 2025, with possibly more in 2026. Such rate cuts, particularly in a recession scenario, could boost gold prices by 10–15%. Conversely, a hawkish Fed or persistent inflation could exert downward pressure on gold prices through a stronger dollar.
Inflationary Pressures
The inflationary backdrop is another element that could provide a boost to gold prices. With the U.S. Consumer Price Index (CPI) currently at 2.9%, there are concerns that tariffs or supply shocks could push inflation above 5% in the latter half of 2025. Sharma emphasized that this stagflationary environment favors gold as both an inflation hedge and a safeguard against currency debasement.
Technical Analysis: Overbought Conditions
From a technical perspective, Sharma pointed out that gold is currently the most overbought on monthly charts since the 1980s, with a Relative Strength Index (RSI) above 88. Over the past 23 months, gold has surged by an impressive 98.84%, creating an extremely overbought situation. While this momentum may continue for a while, the risk-reward ratio is not favorable for new investments at this stage.
Future Projections
Looking ahead, Sharma expects modest gains or range-bound movements in the second half of 2025, followed by stronger upside potential in 2026 as central bank and investor demand remain robust. He posits that the next 12 months favor a bullish bias for gold, with prices potentially testing $4,000 by mid-2026 in a base case scenario.
Conclusion
In summary, the outlook for gold prices remains optimistic, driven by central bank purchases, ETF inflows, and a supportive inflationary environment. However, investors should remain cautious of potential corrections and overbought conditions. As always, it is crucial to stay informed and consider expert opinions when navigating the complexities of the gold market.
(Disclaimer: Recommendations, suggestions, views, and opinions expressed by experts are their own and do not represent the views of The Economic Times.)
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