{"id":32580,"date":"2025-08-04T10:51:39","date_gmt":"2025-08-04T05:21:39","guid":{"rendered":"https:\/\/fundsindia.com\/blog\/?p=32580"},"modified":"2025-08-09T22:28:41","modified_gmt":"2025-08-09T16:58:41","slug":"gold-is-shining-bright-but-for-how-long","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/mf-research\/gold-is-shining-bright-but-for-how-long\/32580","title":{"rendered":"Gold Is Shining Bright – But For How Long?"},"content":{"rendered":"\n
\"\"<\/a><\/figure>\n\n\n\n

Gold has witnessed a sharp rally over the last 6 years (2019-2025), gaining ~20% annually and nearly tripling!<\/p>\n\n\n\n

\"\"<\/a><\/figure><\/div>\n\n\n\n

But here\u2019s the catch!<\/span><\/strong><\/h4>\n\n\n\n

Despite Gold\u2019s recent stellar performance, history reminds us that gold is a cyclical asset. <\/strong>Periods of rapid gains were often followed by long, flat stretches.<\/p>\n\n\n\n

\"\"<\/a><\/figure>\n\n\n\n

For eg- From 2012 to 2019<\/strong>, Gold prices barely moved, giving almost no returns<\/strong>.<\/p>\n\n\n\n

\"\"<\/a><\/figure>\n\n\n\n

From 1980 to 1989<\/strong>, gold stayed flat for nearly a decade.<\/p>\n\n\n\n

\"\"<\/a><\/figure>\n\n\n\n

Oops!<\/strong><\/p>\n\n\n\n

Trying to guess what gold will do next based on recent performance is tempting. But it’s also unhelpful.

A more useful question is: Where are we in the cycle?<\/em> And even more importantly: What should a sensible investor do about it?<\/em><\/p>\n\n\n\n

The goal is not to get the timing perfect. It never is. The goal is to stay thoughtful, balanced, and anchored to first principles.<\/p>\n\n\n\n

Let\u2019s look at where gold stands today – not through opinions, but through evidence.<\/p>\n\n\n\n

Introducing our Gold \u2018C-Y-C-L-E\u2019 Framework\u2026<\/span><\/strong><\/h2>\n\n\n\n

We break this down using 5 key factors to evaluate Gold at any point in time.<\/p>\n\n\n\n

  1. C- Central Banks Demand<\/strong><\/li>
  2. Y- US Real Yields<\/strong><\/li>
  3. C – Mining Costs<\/strong><\/li>
  4. L – Liquidity (US M2 Money Supply)<\/strong><\/li>
  5. E – Equity Comparison<\/strong><\/li><\/ol>\n\n\n\n

    1.<\/strong>   C- Central Banks Demand<\/strong><\/span><\/h3>\n\n\n\n

    Central banks hold a major chunk of the world\u2019s gold, giving them a strong influence on gold prices. Even small changes in their buying or selling can move gold prices sharply.<\/p>\n\n\n\n

    Developed market central banks hold ~75-80% of their reserves in gold, while Emerging markets central banks hold just 5-10%.<\/p>\n\n\n\n

    \"\"<\/a><\/figure>\n\n\n\n

    But the tide is turning!<\/p>\n\n\n\n

    Emerging markets <\/strong>are now catching up <\/strong>and are increasing <\/strong>their gold reserves <\/strong>to diversify and reduce reliance on the US dollar. <\/p>\n\n\n\n

    For eg – From 2010-2021, <\/strong>Central banks bought ~473 tonnes <\/strong>of gold annually <\/strong>(~10-11% of global gold demand).<\/p>\n\n\n\n

    Since 2022<\/strong>, <\/strong>this annual demand has doubled <\/strong>to 1,000+ tonnes <\/strong>(~23% of global gold demand), led by freezing <\/strong>of Russia\u2019s currency reserves<\/strong> by the Western nations <\/strong>-> a wake-up call for countries to shift towards gold. <\/p>\n\n\n\n

    \"\"<\/a><\/figure>\n\n\n\n

    Given the above context, Emerging market central banks are likely to keep buying gold, with plans to grow their holdings from 5-10% to around 20% of total reserves.<\/p>\n\n\n\n

    We believe the current gold buying trend by Central Banks is just getting started as Emerging market central banks still have significant room to increase their gold reserves.<\/span><\/em><\/strong><\/p>\n\n\n\n

    Verdict – POSITIVE<\/span> for Gold.<\/strong><\/h4>\n\n\n\n

    2.<\/strong> Y- US Real Yields<\/strong><\/span><\/h3>\n\n\n\n

    Historically, gold moves inversely <\/strong>with real yields:  <\/p>\n\n\n\n

    Yields fall <\/strong>-> Gold rises<\/strong><\/p>\n\n\n\n

    Yields rise <\/strong>-> Gold falls<\/strong><\/p>\n\n\n\n

    This is because global investors typically choose between US 10Y bonds and gold as safe-haven inflation hedge. Increasing bond yields make gold unattractive and vice versa.<\/p>\n\n\n\n

    However, this relationship has broken down recently led by increased central bank demand offsetting weaker investor inflows<\/strong>.<\/p>\n\n\n\n

    Gold therefore remains strong despite high real yields <\/strong>(1.98% <\/strong>as on Jul-25<\/strong>). <\/p>\n\n\n\n

    If not for the central bank buying, the current High US real yield still remains a headwind for gold prices.<\/span><\/em><\/strong><\/p>\n\n\n\n

    \"\"<\/a><\/figure>\n\n\n\n

    Verdict – NEGATIVE<\/span> for Gold.<\/strong><\/h4>\n\n\n\n

    3.<\/strong>     C – Mining Costs<\/strong><\/span><\/h3>\n\n\n\n

    To evaluate this metric, we consider the All in sustaining costs (AISC). AISC is the total cost per ounce for gold miners to sustain operations which includes:<\/p>\n\n\n\n