Gold’s rally is widely expected to continue in 2025, but uncertainty about ongoing conflicts and Donald Trump’s election in the US have cast doubt on the precious metal’s outlook, with the World Gold Council (WGC) forecasting much more modest growth this year.
Last year, gold recorded its best showing since 2010, outperforming all major asset classes based on indices from Bloomberg and the ICE benchmark administration.
Over the course of 2024, gold’s price set 40 new record highs (the most recent being $2,777.80/oz on October 30) and gained 25.5% by year end, as global elections and heightened geopolitical risk pushed central banks and investors to the safe-haven asset, offsetting a decline in consumer demand.
When central banks started cutting interest rates in the third quarter, total demand surpassed $100bn for the first time, which strengthened forecasts that gold’s rally would continue into 2025.
Big banks, including Goldman Sachs, Barclays and JPMorgan, expect gold to reach $3,000/oz by year end, while UBS forecasts $2,900/oz by December.
But bullion’s ability to sustain its momentum hinges on economic growth outcomes, US monetary policy shifts and geopolitical risks, all of which are shrouded in uncertainty.
According to the WGC, “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”.
While gold’s momentum is expected to slow, there is some upside risk, particularly from stronger-than-expected central bank demand, a key driver of gold’s rally over the past two years.
The council predicts that demand exceeding 500 tonnes will have a net positive effect on gold, and central bank demand is expected to surpass that in 2025.
“Central bank buying is policy driven and thus difficult to forecast, but our surveys and analysis suggest that the current trend will remain in place,” said the council.
Other upside risks include worsening geopolitical tension, particularly after recent headlines from Syria and South Korea. As global conflict persists, more investors may turn to gold as a hedge against risk and uncertainty.
Asian demand is another key determinant. The world’s largest gold markets are China and India, and, excluding central banks, Asia makes up more than 60% of annual gold demand.
Chinese consumer demand is threatened by China’s slower economic growth, which remains uncertain. India’s economic growth, however, has held at above 6.5% in the current fiscal year.
Compared with most US trading partners, India’s smaller trade deficit also makes it less vulnerable to the blanket tariff increases Trump has threatened to impose, with a robust economic outlook likely to protect consumer demand for gold.
Interest rate cuts were another key driver of gold’s rally last year, and, as the US Federal Reserve prepares to cut rates further in 2025, will continue to play a critical role. Typically, higher rates lead investors to favour interest-paying assets such as bonds, reducing the demand for gold.
Market consensus suggests that the Fed will deliver 100 basis points (bps) in cuts by year end, but at its latest meeting officials forecast two fewer reductions in 2025 than they had previously expected, amid lingering inflation.
A more dovish Fed would benefit gold, but a prolonged pause in cutting, let alone a reversal in monetary policy, would put pressure on investment demand.
Against this backdrop, “all eyes are on the US”, said the council. “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.”
While Trump’s probusiness fiscal policy is likely to steer investors to risk-on trades and nongold assets, concerns that his protectionist policies may fuel inflation and disrupt supply chains are likely to temper investors’ risk appetite, which would be good for gold.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.