Why is the gold price continuously rising? Isn't there a decrease?

A rapid increase in gold prices is observed these days in Colombo Hetti Weediya as well as in regional countries like India, China, and Thailand. Especially, the price of an ounce of gold in the international market has exceeded the US$ 5000 mark, and its impact is severely felt in the local market as well.

As of last Tuesday, the price of a 24-carat gold sovereign in Colombo Hetti Weediya was recorded at a high of Rs. 394,000, and a 22-carat gold sovereign at Rs. 364,500. The views expressed by Professor Priyanga Dunusinghe of the Department of Economics, University of Colombo, regarding this are below.

This price increase is primarily influenced by global economic and political uncertainty. Economic policy changes brought about by the American president through tariff adjustments, as well as geopolitical crises created around Venezuela, Iran, and Greenland, have directly contributed to this. In such unstable situations, investors moving away from risky investments like the stock market and turning towards gold, which is considered a safer investment medium, is a major reason for the increase in demand.

In addition to investors, central banks in various countries around the world have also been prompted to accumulate gold instead of dollars as their foreign reserves. According to reports, central banks worldwide have purchased approximately 432 tons of gold in 2025 alone. As pointed out by the Secretary-General of the United Nations, gold prices are predicted to rise further amidst the breakdown of the current international legal system and global uncertainty. According to data from Germany's Deutsche Bank, there is a high probability that the price of an ounce of gold will exceed the US$ 6000 mark in the future.

Alongside gold, a significant increase in silver prices is also observed, primarily due to high demand in the electronics industry. Locally, considering that an average middle-class family possesses two to three gold sovereigns or more, the increase in gold prices has raised the value of their household assets. This is an advantageous situation, as it allows them to obtain a larger loan (approximately 70%-80% of the market value) than before when pawning gold items at banks for urgent needs or for agricultural and small business requirements.

However, with the increase in the value of gold items, the tendency for theft and robbery has also risen, so people should pay close attention to the security of their gold jewelry. Furthermore, due to the excessively high price of gold, young people who wish to purchase gold items for weddings and other needs are facing severe difficulties. In the future, there is a need to introduce installment payment methods, similar to housing or vehicle loan schemes, for purchasing gold items.

There is an accusation that gold prices in the local market do not fall as quickly as they rise, with traders stating that prices are determined by the cost of old gold purchased or production costs. However, even if global prices decrease slightly, a significant drop in local prices cannot be expected. Meanwhile, the free trade agreement to be signed between India and the European Union is important for the regional economy, and Sri Lanka's close cooperation with the rapidly growing Indian economy (6.4% growth) will help achieve economic benefits.

In the current global economic landscape, the dominance of the US dollar is being challenged, with China and BRICS countries emerging as new economic power blocs. With many countries moving away from dollar reserves to gold reserves, there is a high probability that Indian Rupee-based transactions will expand in the South Asian region in the coming period. This new multi-polar economic pattern and the behavior of gold prices will be a crucial factor in determining Sri Lanka's future economic trajectory.