What will be the Gold price in 2025? Whether Gold will touch 1 lakh in 2025? Let us answer to such questions by looking at the last 45 years’ data of gold.
Gold is regarded as a highly attractive investment option for many of us. A look at the returns from recent years shows that this interest is quite common. In the past two to three years, gold has delivered annual returns of over 30%. As a result, investors are inclined to expect similar performance in the near future.
Whether Gold will touch 1 Lakh in 2025?
To address this inquiry, I have utilized the daily data spanning the last 45 years, sourced from the World Gold Council, covering the period from 1979 to 2024. This analysis encompasses approximately 11,969 daily data points. For this purpose, I have focused exclusively on 1-year rolling returns, as our objective is to forecast the gold price for 2025. A graphical representation of the 1-year rolling returns over the past 45 years is illustrated below.
Upon examining the results, it becomes apparent that the volatility of gold over this brief one-year timeframe is significant. Over the past 45 years, the highest return recorded for a one-year period is 253%, while the lowest return stands at -33%. The average return during this span is approximately 12%.
The price of 1 gram of gold in Indian Rupees (INR) on November 15, 2024, stands at Rs. 6,983, according to the World Gold Council. If we project an increase to Rs. 10,000, this would imply an anticipated return of approximately 43% over the course of the next year. Is such a growth feasible?
Upon a thorough examination of the past 45 years of data, it becomes evident that during a one-year rolling returns period, returns exceeding 10% but less than 20% occurred 2,243 times. Returns surpassing 20% but below 30% were recorded 1,479 times, while those exceeding 30% but under 40% happened 888 times. Finally, returns greater than 40% but less than 50% were observed only 368 times.
The 1-year rolling returns data indicate a value of approximately 11,705. The likelihood of achieving returns between 10% and 20% stands at 19%, while the probability for returns ranging from 20% to 30% is 13%. Additionally, the chance of obtaining returns between 30% and 40% is 8%, and the probability for returns between 40% and 50% is approximately 3%. Furthermore, the probability of exceeding 50% returns is also around 3%.
There are two main reasons why people think the current trend will continue into the future. The first reason is that central banks are increasing their gold reserves while slowly reducing their reliance on the dollar. While this observation is somewhat valid, forecasting their actions for the upcoming year or in the short term is challenging. The second key factor that many link to the decline of the Indian Rupee against the Dollar is rooted in historical data.
I will clarify the connection between the dollar’s appreciation against the rupee and its impact on gold prices using the following examples.
1. When the US Dollar appreciates (becomes stronger against INR):
- Meaning: The US Dollar is worth more compared to the Indian Rupee. For example, if 1 USD moves from 70 INR to 75 INR, the Dollar has appreciated because it now requires more Rupees to buy 1 USD.
- Effect on Gold Price in INR: When the US Dollar strengthens, the price of gold in INR tends to increase.
- Why? Gold is priced in USD globally. So, when the USD strengthens, it takes more INR to buy the same amount of gold, because the value of gold in USD hasn’t changed, but the USD is now more expensive in INR.
Example:
- If gold is priced at $1,500 and 1 USD = 70 INR, the gold price in INR is ?105,000 (1,500 × 70).
- If 1 USD appreciates to 75 INR, the gold price in INR would increase to ?112,500 (1,500 × 75).
- Conclusion: The price of gold in INR goes up when the US Dollar appreciates.
2. When the US Dollar depreciates (becomes weaker against INR):
- Meaning: The US Dollar is worth less compared to the Indian Rupee. For example, if 1 USD moves from 70 INR to 65 INR, the Dollar has depreciated because it now requires fewer Rupees to buy 1 USD.
- Effect on Gold Price in INR: When the US Dollar weakens, the price of gold in INR tends to decrease.
- Why? Since gold is priced in USD, if the USD weakens, it takes fewer INR to buy the same amount of gold. The gold price in USD remains the same, but the weaker Dollar makes gold less expensive in INR terms.
Example:
- If gold is priced at $1,500 and 1 USD = 70 INR, the gold price in INR is ?105,000 (1,500 × 70).
- If 1 USD depreciates to 65 INR, the gold price in INR would decrease to ?97,500 (1,500 × 65).
- Conclusion: The price of gold in INR goes down when the US Dollar depreciates.
- When the US Dollar appreciates (strengthens against INR), gold becomes more expensive in INR.
- When the US Dollar depreciates (weakens against INR), gold becomes cheaper in INR.
An examination of the two assumptions regarding central banks’ gold holdings and the appreciation of the dollar reveals an inherent contradiction in assessing the potential increase in gold prices. Should central banks significantly shift their reserves from the dollar to gold, it would inevitably lead to a decline in the dollar’s value in the future.
Another point to consider is that if our nation’s economy grows in the future, it could negatively impact the value of the dollar. However, this doesn’t mean I think the dollar won’t appreciate against the rupee in the future, as it has done historically. I’m simply trying to clarify these ideas.
You may have noticed that the price of gold is quite volatile, even for those looking at long-term investments (see my earlier discussions on gold under “Gold“). Given this, and after reviewing 45 years of data on 1-year rolling returns, the expectation of a 43% increase or gold reaching Rs. 1 lakh by 2025 seems overly optimistic. To be honest, none of us, myself included, can accurately predict gold prices for 2025. Therefore, instead of trying to make predictions, it’s crucial to first understand the inherent volatility of gold. It’s wise to refrain from making short-term forecasts about such a fluctuating asset. If you are comfortable with the risks and volatility involved, then consider investing in gold. Otherwise, it might be better to steer clear of it. NONE CAN PREDICT PERFECTLY WHETHER THE NEXT YEAR WILL BRING 43% GAIN OR 43% LOSS FOR GOLD INVESTORS. Simply stay away from such prediction…!!
