It's a gold rush again but Ruchir Sharma sees a risk no one's talking about - BusinessToday

  gain-but-ruchir-sharma-sees-a-risk-no-one-s-talking-about-businesstoday.html
  Stocks and Investing on Thu, Oct 23rd, 2025 by Business Today

Supply Constraints and Mining Output

One of the primary concerns Sharma raises is the potential overestimation of gold’s supply resilience. While gold mining output has traditionally been a buffer against price spikes, recent data suggest that major producers such as South Africa, Australia, and Ghana have struggled to maintain production levels due to labor shortages, regulatory hurdles, and rising operating costs. The article cites a 2024 mining report indicating that global gold output fell by 2 % from the previous year, a figure that could reverse the expected downward pressure on prices.

Moreover, Sharma points out that gold mining is increasingly subject to stricter environmental regulations. Countries that have been the backbone of gold production are tightening emission standards and requiring more expensive reclamation procedures. These regulatory changes could further erode supply, pushing prices upward, but they also increase the cost of new projects and delay timeframes for production ramp‑ups.

Currency Dynamics and the Dollar’s Role

Sharma emphasizes the role of the U.S. dollar as a key driver of gold’s valuation. Historically, gold trades inversely to the dollar: a weaker dollar makes the metal cheaper in other currencies, boosting demand. The article outlines that the dollar’s recent recovery, underpinned by an anticipated rate hike by the Federal Reserve, could dampen gold prices. Despite the dollar’s strength, Sharma cautions that inflation expectations remain high and that the Federal Reserve’s policy stance could shift quickly if the U.S. economy shows signs of distress. A pivot to a more dovish stance could once again weaken the dollar and lift gold, creating a volatile environment.

Inflation and Real Interest Rates

Inflation, which has been stubbornly high worldwide, remains a double‑edged sword for gold. While rising price levels often boost gold’s appeal as a hedge, they also keep real interest rates low, which, in turn, keep borrowing costs cheap for gold‑mining companies. This dynamic, according to Sharma, has been an underappreciated driver of gold’s resilience. However, the article notes that central banks in advanced economies have begun to tighten policy to curb inflation, and any significant tightening could tighten capital flows into the commodity, potentially suppressing gold’s upward momentum.

Geopolitical Tensions and Market Sentiment

The Business Today piece also touches on geopolitical developments that may impact gold’s demand. Tensions in the Middle East, ongoing trade disputes between the U.S. and China, and recent unrest in Eastern Europe have heightened market uncertainty. Sharma argues that such conditions can amplify the perception of gold as a safe‑haven, but they can also create short‑term volatility that could derail long‑term price trends.

Technological and Demographic Shifts

Another layer of risk that Sharma explores is the potential impact of technology and demographics on gold demand. While jewelry remains the primary driver of gold consumption, shifting consumer preferences—especially in emerging markets—could alter demand patterns. The article references a study on Indian consumer behavior that shows a gradual shift toward digital currencies and alternative luxury goods, potentially reducing the traditional jewelry demand. Moreover, increased adoption of gold‑backed fintech products may introduce new market dynamics that are difficult to predict.

Conclusion: A Cautious Approach

In the closing section, Sharma reiterates that the current gold market is characterized by a mix of traditional safe‑haven appeal and emerging structural risks. He urges investors to adopt a nuanced perspective, looking beyond headline price movements to understand supply constraints, regulatory pressures, currency fluctuations, inflation dynamics, geopolitical risks, and changing consumer behaviors. The article concludes by suggesting that a well‑diversified portfolio, which includes exposure to gold but also other assets with complementary risk‑return profiles, may offer the most resilient strategy in an uncertain global environment.