The gold price hit high after high in 2024 due to global uncertainties and is expected to continue to rise.
The World Gold Council predicts that the gold price will increase steadily from its current levels during 2025, effectively saying that it has established a new floor of solidly above $2 400 per ounce.
The organisation, along with several other pundits, says that global uncertainties remain worrisome enough to fuel continued investment. If things go well and economies improve, there will also be healthy demand for gold trinkets, investment bars, and coins.
“Gold is poised for its best annual performance in more than a decade,” the World Gold Council said of the 28% increase through November, even though the price fell back to below $2 600 during the last two weeks.
“Central bank and investor buying have more than offset a notable deceleration in consumer demand. Asian investors have been a near constant presence, while lower yields and a weakening dollar in the third quarter fuelled Western investment flows.
“However, it is gold’s role as a hedge amidst rising market volatility and geopolitical risk that most likely explains its remarkable performance (during 2024),” the organisation says in a recent report.
“As we look forward, all eyes are focused on what Trump’s second term may mean for the global economy. Thrill-seeking investors may benefit from an early wave of risk-on flows, but potential trade wars and inflationary forces may spill over into an expected subpar economic growth.
“The market consensus of key macro variables such as GDP, yields and inflation – if taken at face value – suggests positive, but much more modest growth for gold in 2025.
“Upside could come from stronger than expected central bank demand, or from a rapid deterioration of financial conditions leading to flight-to-quality flows. Conversely, a reversal in monetary policy, leading to higher interest rates, would likely bring challenges,” it says.
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Best asset in 2024
The World Gold Council expects China’s contribution to the gold market will be key, either when consumers buy gold jewellery if the economy reacts to China’s recent economic stimuli or demand from investors if the economic outlook sours.
“Consumers have been on the sidelines while investors have provided support. But these dynamics hang on the direct (and indirect) effects of trade, stimulus and perceptions of risk,” it says.
The World Gold Council notes that the average gold price increased by approximately 22% in US dollars and euros, more than 31% in yen, and a massive 68% in Turkish lira from the beginning of 2024 to the end of November.
“Gold remains one of the best performing assets of the year.”
Gold reached 40 new record highs during 2024, and total gold demand in the third quarter surpassed $100 billion for the first time ever. Investment demand, especially through over-the-counter transactions, was supported by an undercurrent of geopolitical risk and volatility in many regional financial markets.
Central banks continued to add gold to reserves during the year, with buying picking up speed in early October. For most of the third quarter, Western investors flocked back to gold as central banks started cutting interest rates.
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US politics
The World Gold Council says all eyes will be on the US in 2025. “Trump’s second term may provide a boost to the local economy but could equally elicit a fair degree of nervousness for investors around the world.
“Trump starts his second term in late January but the US stock market is already banking on a pro-business agenda with a near 7% increase since early November. Tech stocks (and the Magnificent 7) have done even better.
“A more business-friendly fiscal policy combined with an America-first agenda is likely to improve sentiment among domestic investors and consumers. This will likely favour risk-on trades in the first few months of the year.
“The question, however, is whether these policies will also result in inflationary pressures and disruptions to supply chains. In addition, concerns about European sovereign debt are once again mounting, not to mention continued geopolitical instability, particularly in light of the events in South Korea and Syria in early December,” according to the World Gold Council.
Market consensus suggests that the Federal Reserve will decrease interest rates by 100 bps with inflation softening (but still above target). European central banks will also likely cut rates by a similar amount.
“The US dollar is expected to remain flat or slightly weaken as conditions normalise, while global growth remains positive but continues to grow below the long term trend.
“In this context, the actions of the Fed and the direction of the US dollar will continue to be important drivers for gold,” it says.
However, while important, these two factors are not the only ones that determine gold’s performance.
The World Gold Council listed four other:
- The rate of economic growth and its direct effect on consumer demand;
- Risk and uncertainty as a trigger for flows from investors looking for effective hedges;
- Opportunity cost that makes gold more (or less) attractive relative to bond yields; and
- Momentum in price movements which can boost trends or cause the price to revert to the mean after a big movement.
The final analysis shows that gold will continue to trade in a similar range in 2025 to that seen in the last part of 2024, with the potential for some upside if the economy performs according to consensus in 2025.
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Market analysts
Dane Viljoen, co-founder of Troygold, touts a research report by Goldman Sachs, which predicts an increase in the gold price to above $3 000 per ounce in 2025. “The structural drivers of the gold price remain sound.
“According to Goldman Sachs, gold is set to rally to a record $3 000 per ounce next year on central bank buying and US interest rate cuts. In a recent note, the bank’s analysts said, ‘Go for gold’.
“The bank reiterated that although Trump’s win strengthened the dollar in the short term, his trade policies favouring levying tariffs, the fiscal unsustainability of the government’s finances and other central banks’ sustained bullion buying to diversify away from US treasuries would fuel gold’s rally upward,” says Viljoen.
Alex Kuptsikevich, chief market analyst at broker FxPro, says that while the gold price fell some 4% in the first week of December after a ceasefire between Lebanon and Israel was announced, it has recovered around half of that fall.
“The price found support at $2 600 per ounce, which also provided support in late September and early October. Technically, the sharp dip is an important signal that the bears are in control, having taken the price below the 50-day moving average shortly after attempting to consolidate higher.
“However, confirmation will now be key.
“A further drop below $2,600 would make the area of this month’s lows at $2,540 the short-term target for the sellers, with the market continuing to move towards $2,400.
“The slow but steady rally last week suggests cautious buying, indicating continued interest even at current historically high levels. A weekly and monthly close above $2,670 could be a signal for further gains, marking a return to territory above the 50-day moving average,” he says.
Kuptsikevich predicts a rally above the previous historic high of $2 720 could see the gold price run to $3 400 per ounce, representing a 22% increase from the previous highs and almost 28% from the current price.
This article was republished from Moneyweb. Read the original here.
