Gold Price Annual Forecast: Is another record-setting year in the books in 2025
Gold benefited from escalating geopolitical tensions and the global shift toward a looser monetary policy environment throughout 2024, setting a new all-time high at $2,790 and rising around 25% for the year. However, the uncertainty surrounding the impact of US President-elect Donald Trump’s policies on the global economy and the unpredictability of the geopolitical environment paint a cloudy picture for the precious metal in 2025.
Gold in 2024: Geopolitics, central-bank purchases fuel rally to new all-time highs
Gold started the year in a relatively quiet manner, spending January and February fluctuating in a narrow channel at around $2,000. Investors refrained from taking large positions, while keeping an eye on geopolitics and assessing the impact of macroeconomic developments on the Federal Reserve’s (Fed) policy outlook.
Toward the end of February, Gold gathered bullish momentum and rose nearly 10% in March, reaching a new all-time high above $2,200 in the process. Selling pressure surrounding the US Dollar (USD), a pullback in US Treasury bond yields, and strong Chinese demand during the Spring Festival fuelled Gold’s rally as the first quarter came to an end.
Gold extended its uptrend in April and rose above $2,400 before correcting lower in the second half of the month. Nevertheless, XAU/USD closed the month with a gain of over 2%. The unexpected increase in the Personal Consumption Expenditures (PCE) inflation rate in the US caused investors to price in a delay in the Fed policy pivot. As a result, the benchmark 10-year US Treasury bond yield rose more than 10% in April, capping Gold’s upside.
Following a two-month consolidation period in May and June, Gold regathered its strength in July and entered a four-month uptrend. From July to November, Gold gained more than 15% and touched a new record-high near $2,800 on the last trading day of October.
Assessing Gold’s performance in the first half of 2024, “Gold has performed remarkably well in 2024, rising by 12% y-t-d and outpacing most major asset classes. Gold has thus far benefitted from continued central bank buying, Asian investment flows, resilient consumer demand, and a steady drumbeat of geopolitical uncertainty,” said the World Gold Council in its Gold Mid-Year Outlook 2024.
Several factors contributed to Gold’s impressive upsurge in the second half of the year. Major central banks’ decision to start lowering key rates and escalating geopolitical tensions allowed Gold to shine. Additionally, India’s decision to lower Gold import duties to its lowest level in over a decade ramped up the demand for the yellow metal.
Iran’s involvement in the Israel-Gaza conflict increased fears of a deepening conflict in the Middle East in late summer and spurred safe-haven demand for Gold. Meanwhile, the unwinding of Japanese Yen carry trade positions weighed heavily on the USD in early August, further boosting XAU/USD.
The Federal Reserve lowered the policy rate for the first time in over four years in September, lowering borrowing costs by 50 basis points (bps), and opted for another 25 bps cut in November. The ongoing disinflation process and growing signs of a slowdown in economic activity caused policymakers to shift their attention to the labor market, opening the door for a policy pivot. In addition to the Fed, the European Central Bank (ECB) lowered key rates by 25 basis points in June, September, October and December. The Bank of England, the Bank of Canada and the Swiss National Bank were among other major central banks that opted for rate cuts, reflecting a global shift toward a looser policy environment.
In early November, Donald Trump’s victory in the US presidential election triggered a rally in the USD despite the Fed’s rate cut. As a result, XAU/USD turned south and lost over 3% in the month, snapping a four-month winning streak. Meanwhile, renewed escalation in the Russia-Ukraine conflict, after US President Joe Biden authorized Ukraine to use powerful long-range American weapons to strike inside Russia, helped Gold limit its losses.
After struggling to find direction in the first half of December, Gold came under bearish pressure after the Fed’s last meeting of the year. Although the US central bank opted for another 25 bps reduction in interest rates in December, the revised Summary of Economic Projections (SEP), also known as the dot plot, showed that policymakers saw the policy rate at 3.9% at the end of 2025, implying a 50 bps cut throughout the year, compared to the 100 bps projected in September’s SEP. US T-bond yields surged higher and caused XAU/USD to stretch lower heading into the Christmas holiday. In the meantime, Fed Chairman Jerome Powell noted that they can be more cautious in reducing rates going forward.
Assessing the impact of Fed’s policy outlook on Gold’s valuation, “the implication is that the resulting higher-than-anticipated cost
This is likely to prompt speculators, who have beefy long positions, to take profits and drive prices lower. The very strong USD is also set to be a material headwind working against gold in the near term (Cay)
Source: Fxstreet
