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The year 2024 witnessed a remarkable surge in gold prices, delivering nearly 27% returns and significantly outperforming major market indices like the S&P 500 and Nifty 50. This impressive performance, the best since 2010, was primarily driven by escalating geopolitical uncertainties. The ongoing war in Ukraine, the instability in the Middle East following the fall of Bashar al-Assad's regime, and other global tensions fueled a heightened demand for gold as a safe-haven asset. Investors, seeking refuge from the volatility in the global political landscape, flocked to gold, driving its price to record highs. This surge in demand wasn't limited to individual investors; central banks also played a significant role, continuing their trend of accumulating gold reserves. While the pace of central bank purchases is expected to moderate in 2025 compared to the preceding years, they are still projected to remain net buyers of gold, a factor that could continue to support prices, albeit at a potentially slower rate. The sustained increase in gold's price was further bolstered by the US Federal Reserve's implementation of rate cuts. These cuts reduced the opportunity cost of holding gold, making it a more attractive investment option for those seeking protection against inflation. The substantial increase in global bullion demand, exceeding $100 billion in Q3 2024 for the first time, underscored the widespread appeal of gold as a hedge against economic and political uncertainties.
However, the outlook for gold in 2025 presents a more nuanced picture. The strengthening US dollar, fueled by President-elect Donald Trump's anticipated policies and the potential for increased tariffs, has introduced a countervailing force to gold's rally since November. This rise in the US dollar, nearing two-year highs, presents a significant headwind for gold, as it tends to inversely correlate with the price of precious metals. The Federal Reserve's approach to inflation will be crucial. While the Fed anticipates softening inflation, it is also expected to remain above target, leading to a base-case scenario of two rate cuts in 2025. This will partly determine gold's attractiveness as a safe-haven asset, particularly against inflationary pressures. European central banks are also expected to follow suit with rate cuts, potentially further affecting the demand for gold. Predictions for gold's price in 2025 vary significantly among financial institutions. While UBS forecasts a price of $2,900 per ounce, Citi, Goldman Sachs, and JPMorgan have even more bullish projections, setting targets of $3,000 by December 2025. The World Gold Council (WGC), however, offers a more conservative outlook, predicting a range-bound year, contingent on the economy performing as expected. They highlight that higher interest rates and slower economic growth pose substantial risks to gold's price trajectory in 2025.
The Asian market dynamics present another layer of complexity to the forecast. Gold may face increased competition from equities and real estate in some parts of Asia in 2025. The demand for gold in China will depend heavily on the nation's economic growth rate. Conversely, India’s gold demand is expected to remain relatively stable. Its smaller trade deficit and projected economic growth above 6.5% are expected to buffer it from the potential impact of a US tariff war, thus supporting consumer demand for gold. However, a recent surge in India's trade deficit, largely attributable to a four-fold increase in gold imports in November, raises questions and is under investigation by the Commerce Ministry. This unexpected surge requires careful monitoring, as it could potentially impact the overall forecast. The total market capitalization of all gold ever mined is estimated at $17.7 trillion, highlighting the enduring value of gold as a store of wealth and a hedge against uncertainty. Ultimately, the future price of gold hinges on a complex interplay of factors—geopolitical stability, monetary policy decisions by major central banks, the strength of the US dollar, the economic performance of key global markets, and shifts in investor sentiment. The consensus seems to lean towards cautious optimism, with the potential for both upside and downside surprises in the coming year.
Source: Gold Outshines S&P 500, Nifty 50 With 27% Returns In 2024; Will Rally Continue In 2025?