Explainer: Why gold prices keep fluctuating, and why investors shouldn’t panic
The Fed’s rate cuts and global unrest pushed gold to record prices in 2025, but the end of the year tends to be volatile
Now, a slump is following the euphoric highs. Gold prices went down 5 per cent in a single day on December 29, mirroring a similar decline earlier this year. Silver experienced an even more dramatic drop – 11 per cent on the day, which hasn’t happened since September 2020.
So, what exactly is making the gold market act up? Let us explain.
The Rise
Earlier this month, the Fed announced its third quarter-point rate cut of the year. Interest rates were lowered to stimulate the economy, fuelling expectations of more such cuts in the near future. As borrowing costs come down, savings earn less interest, making gold the more lucrative investment option to buyers, even if it does not bear interest. With everyone around the world going for gold, thanks to the Fed’s rate cuts weakening the US dollar, demand skyrocketed, and so did the prices.
Add to this the current political climate of the world, such as the US’ conflicts with Venezuela and Nigeria, unrest in the Middle East and the Russia-Ukraine war – and investors are turning to gold for security. Furthermore, in 2025, the investor pool has reportedly expanded to include corporate players and even cryptocurrency companies. Central banks of countries like Poland, India, Brazil, Uzbekistan and China are also stockpiling gold, drawing down reserves and again leading to higher prices.