A sharp correction in gold prices can trigger margin calls and liquidation of leveraged positions, forcing investors to sell other financial assets and imparting volatility across markets, cautioned an RBI study.
The correction can also affect portfolio allocation and market sentiment, leading to broader repricing in equities, bonds, and currencies.
“Overall, the evidence suggests that gold prices entered a significant phase of price escalation in 2025, consistent with bubble-like behaviour, with the sharp and persistent price surge pointing to pronounced market exuberance and a possible increase in underlying risks,” per the study published in the RBI’s latest monetary policy report.
Geopolitical tensions
The study noted that gold prices rose sharply since 2024, driven by escalating geopolitical tensions, a weakening US dollar, and growing expectations of monetary policy easing across major economies following the end of the global tightening cycle.
Prices underwent a sharp appreciation – increasing by more than twice within a relatively short span from around $2,060 at end-2023 to $5,000 per ounce by February 2026 while repeatedly scaling new highs.
“During this period, gold ranked among the best-performing assets globally. While part of this increase reflects strong safe-haven demand and heightened uncertainty, the pace and persistence of the rise suggest the possibility of the build-up of bubble-like dynamics during 2025. Bubbles typically feature rapid, accelerating price surges- usually referred to as explosive behaviour – followed by sharp corrections.
“Yet, their detection remains tricky: there is no conclusive evidence that post‑surge crashes are predictable, making it difficult to distinguish irrational exuberance from rational responses to changes in fundamentals that may be latent or unobserved,” the study said.
Published on April 8, 2026