Gold & Silver at Record Highs: Should Indian Traders Hedge or Hold Back?

Gold and silver prices are at record levels, both in India and globally. On 3 October 2025, international gold reached $3,890 per ounce, while Indian 24-carat gold crossed ₹1.14 lakh per 10 grams in some centres. Silver has also risen sharply, trading above ₹1.4–1.5 lakh per kilogram domestically.

On the Multi Commodity Exchange (MCX), gold touched ₹1,17,650 per 10 grams and silver ₹1,43,558 per kilogram on 1 October. In cities like Mumbai and Delhi, gold traded above ₹1,17,000 per 10 grams, while silver crossed ₹1.51 lakh/kg.

Over the past year, gold has delivered roughly 55% returns and silver about 30%, outperforming many other investments. Traders now face the question: should they secure their returns or continue to hold?

What’s Driving the Rally?

Here are some factors that contribute to the demand for precious metals:

• Geopolitical Tensions

The precious metals rally is driven by increased geopolitical uncertainty and the dysfunctional fiscal situation in the United States. As you know, the government officially entered a shutdown on 1 October 2025, due to congressional gridlock over passing a budget. Due to this shutdown, the release of certain important economic reports were disrupted, leading to investors becoming more nervous. Combined with rising geopolitical risks abroad, this nervousness led many to buy safe-haven assets like gold and silver, driving up their prices.

• Fed Rate Cut

Markets are pricing in a near-certain rate cut by the Federal Reserve this month, with the CME FedWatch Tool showing a 99% probability. This dovish pivot follows soft US labour data and a cooling inflation trend - August’s Personal Consumption Expenditures Price Index (PCE) index rose just 2.7% YoY, in line with forecasts. Lower rates reduce the opportunity cost of holding non-yielding assets like gold and silver, boosting their appeal. The dollar index (DXY) has dropped around 11% YTD, further supporting metal prices.

• Rupees Depreciation

The Indian rupee has sharply depreciated against the dollar, surpassing ₹88/USD in early October 2025. This has not only made imported goods expensive in India, such as gold and silver, but it has also prompted domestic investor demand. Equity markets have been volatile, and inflationary pressures remain high, so Indian investors are turning to precious metals as a hedge against inflation. MCX gold futures have tracked the global trend, and silver demand is also increasing due to its use in the solar and electronic industries.

• Industrial Demand

Due to silver’s essential application in solar panels and electric vehicles, industrial demand for silver is increasing rapidly. Silver demand for photovoltaics is anticipated to grow significantly globally in 2025. Further lithium-ion battery development, catalysts, and increased electric vehicle manufacturers are leading to increased silver use for better conductivity. This demand increase leads to a silver supply shortage, as mine production has not outpaced consumption yet.

• Central Bank Accumulation

Central banks globally have continued accumulating gold in 2025. The World Gold Council reported net purchases of 180 tonnes in Q3, led by emerging market economies. These purchases are aimed at diversifying reserves and reducing reliance on USD-denominated assets. Silver, while less common in central bank reserves, has seen indirect support via sovereign green infrastructure programs that boost industrial demand. The accumulation trend is structural, not tactical, and reflects long-term confidence in precious metals. Central bank buying acts as a price floor, reducing volatility and supporting sustained rallies.

Should Traders Rotate into Metals or Stay Equity-heavy?

With gold prices hovering, traders face a classic dilemma - rotate into metals or stay equity-heavy. The surge, while tempting, risks FOMO-driven allocations that ignore gold’s core function: a volatility hedge, not a momentum trade.

In contrast to equities, gold does not generate compounded returns nor does it measure productivity; it is effectively a measure of purchasing power during inflationary periods or when experiencing geopolitical uncertainty. In the World Gold Council’s Q2 2025 report, investment demand for gold was reported at US$132 billion, a record high and 45% higher than the prior year, driven mostly by inflows into exchange-traded funds and purchases by central banks. Demand for jewellery was down 14% in YoY volume, despite the price increase, indicating that some consumer behaviour is price sensitive.

Mining supply increased 3%, year-on-year, to 909 tonnes; however, we do see continued weakness in recycling, which probably means there will be limited upside from supply shocks. For Non-Banking Financial Companies, higher gold prices increase the value of the collateral, increasing loan-to-value ratios and therefore decreasing the risk to lending, especially for gold lending heavyweights Muthoot and Manappuram.

The flip side of volatility is that it generates margin calls as well as increased scrutiny from regulators. In particular, jewellery retailers are facing complicated scenarios where larger ticket sizes increase prices but thin volume means they have to recalibrate their inventory. For traders, they need to avoid chasing a rally and instead make objective determinations as to whether hedging the portfolio is warranted.

During equity drawdowns, metals can provide downside protection; however, too much exposure can lead to underperformance during bull markets. As a general principle, some exposure (ETFs or sovereign gold bonds) along with maintaining core equity positions is a prudent strategy that greatly aligns with maintaining the overall risk-adjusted performance in the long run. In the end, the rise in gold should not be seen as a quick way to generate returns, but as a sign of the state of the market. When momentum is strong, it makes sense to change your exposure, but decisions should be guided by strategy, not emotion.

Conclusion

Gold and silver’s record highs highlight their strength as safe-haven assets amid global and domestic uncertainties. While rising prices tempt traders to chase quick returns, metals are mostly viewed as portfolio hedges rather than momentum trades. Central bank buying, industrial demand, and rupee depreciation further support their outlook. However, equities still drive long-term growth. A balanced strategy of mixing metals with equities can balance the portfolio while capturing future opportunities.

Sources

Financial Content
FXEMPIRE
CNBC TV18
World Gold Council