Gold is shining brighter than ever—and that’s exactly why you should be careful

In other words— we’ve seen this movie before.

Back then, investors flocked to gold as a safe haven. Prices nearly quadrupled, peaking at $850 an ounce in January 1980, according to the LBMA, formerly the London Bullion Market Association. Mining operations expanded, the wealthy opened gold accounts in London and Zurich, and some individuals even sold fixed deposits to invest in coins and bars.

But the boom didn’t last. Prices fell to $500 an ounce and lower, and for the next 25 years, gold remained largely in a range.

Why history matters

This sequence is worth remembering as gold has surged around 50% this year. Past booms show that while many double down on gold, not everyone profits. Behavioral biases—like greed and herd mentality—often drive investors into rallies, sometimes harming long-term portfolios.

Unlike stocks, which have underlying businesses influencing prices, gold moves mostly on sentiment.

And this is largely because the supply of gold is limited. If you add up all the world’s gold coins, bars and jewellery, it amounts to 2,16,265 tonnes—just enough to make a seven-story building, about 70 feet tall, wide and deep, according to the World Gold Council.

Now if suddenly millions of large and small investors want to own a piece of this building, prices are bound to go up. Until another investment catches their fancy.

Where are gold prices headed?

At around $3,950 an ounce (around ₹1.2 lakh per 10 grams as of 6 October), gold hit a fresh high on Tuesday, nearly doubling in value over the past two years.

At $3,770 an ounce (around ₹1.2 lakh per 10 grams as of 6 October), gold has nearly doubled in two years.

Analysts attribute the recent run-up to large buying by central banks which are trying to hedge against economic uncertainty caused by new tariffs and other policies of the US government. This uncertainty is making other investments, like stocks, look dicey.

Investors—both large and small— are now buying gold, partly because it has become so easy and cheap to do so, via digital gold coins or gold ETFs.

Many believe that the forces pushing gold up so far will remain valid in the coming months although some believe that the rally is now due for a sharp about turn. Wall Street firms like JP Morgan and Bank of America are predicting gold price at $4,000. How right they are, time will tell. But history provides some clues about predictions.

It’s difficult to predict the peaks or rallies and that is equally true when predicting a downturn. In April 1979, when gold had jumped 60% and was trading at around $230 an ounce, Anthony Boeckh, a prominent analyst at the time, told Dow Jones News Service that though gold price could still go up in the long run, the major gains had been made and it was time to trim holdings. Meanwhile, Charles R. Stahl, publisher of Green's Commodity Letter, told The Washington Post newspaper in an article in June 1979, that “the next big move for gold will be on the downside."

Both analysts were off in their timing, because gold prices rose 3 times between July 1979 and its peak in Jan 1980.

Your emotional decision matrix

For Indians, gold already carries emotional significance. But if you’re considering it for your investment portfolio, pause to identify your predominant emotional bias—this helps ensure your decisions serve you well in all market conditions.

Ask yourself why gold has caught your attention. Two common emotions often drive investors:

Not wanting to lose: The fear that global turmoil will persist can push investors toward gold as a “safe" asset. A similar trend occurred during the Covid-19 pandemic. At the start of 2020, fearful investors sold stocks, and the Nifty 50 fell about 35% by mid-March amid lockdowns. Meanwhile, gold, which also dipped briefly, surged 35% over the next five months to $2,067 an ounce.

So, was holding gold better than stocks during that turmoil? Not necessarily for long-term investors. As the world adjusted to remote functioning, the Nifty 50 staged a strong rally, while gold underperformed for the next four years. ₹10,000 invested in the Nifty 50 at the start of 2020 would have grown to about ₹11,500 by the end of that year and around ₹14,000 by the end of 2021. In comparison, ₹10,000 in gold would have grown to ₹12,500 by end-2020 but only ₹11,900 by end-2021.

Wanting to join winners: Another emotional driver is the urge to follow a winning trend. But jumping on a rising tide doesn’t always end well.

Narendra Kondajji, founder of mutual fund distributor Prokens Opesmetrics in Bengaluru, recalls how, around 15 years ago, people were buying silver bars and coins amid a 250% surge in price by April 2011, while stocks lagged. Some even lent silver to jewelers for storage due to lack of space, only to sell at a loss later. By September 2011, silver had dropped nearly 40%, and by 2015 it had fallen around 70%.

Pain of loss: Studies show that we feel the pain of losing money roughly twice as intensely as the joy of gains. This makes chasing a rising gold wave psychologically risky.

Financial advisers suggest managing these emotions through disciplined asset allocation. Gold can play a role in a diversified portfolio, providing a hedge when other assets fluctuate.

Kondajji recommends allocating 5–15% of your portfolio to gold. Given the recent run-up, he advises staggered investments rather than a lumpsum purchase and a long-term horizon of 10–15 years. “Once geopolitics settles down, gold prices are likely to normalise," he said.