Haven purchases propelled gold to a two-week high in the first week of 2025.
The market is showing mixed signs in anticipation of the Federal Reserve’s rate outlook and the possible effects of President-elect Donald Trump’s proposed trade tariffs.
Gold saw a remarkable surge in the second half of last year due to several factors.
Gold’s success was made possible by major central banks’ decisions to begin cutting key rates and rising geopolitical tensions.
The demand for gold also increased after India decided to reduce import taxes to their lowest level in more than ten years. In late summer, Iran’s role in the Israel-Gaza conflict heightened concerns about a worsening Middle East conflict and fueled demand for gold as a haven.
In September, the Federal Reserve reduced borrowing costs by 50 basis points by lowering the policy rate for the first time in more than four years. In November, the Fed cut interest rates by 25 basis points.
Donald Trump’s win in the US presidential election in early November caused the dollar to rise, even though the Fed had lowered interest rates. Consequently, gold lost more than 3 percent during the month, ending a four-month winning streak.
At the same time, gold was able to minimize its losses due to the renewed escalation in the Russia-Ukraine conflict, which occurred after US President Joe Biden permitted Ukraine to strike inside Russia using potent long-range American weapons.
Gold was under bearish pressure after the Fed’s last meeting of the year. The US central bank nevertheless decided to cut interest rates by an extra 25 basis points last month, giving haven assets a boost from a long-term perspective, but a more hawkish Fed dampened such a bias.
Bullish outlook on the yellow metal
Corrections or consolidations in the early phase of this year could set the stage for a renewed rally.
The unwinding of President Donald Trump’s effect—a phenomenon characterized by a strong US dollar and strong stock markets—could make the dollar weaker and gold prices rise. January’s inauguration of Trump has increased uncertainty, as his protectionist policies and proposed tariffs are predicted to cause inflation and possibly lead to trade wars.
- Goldman Sachs has the most optimistic gold price forecast amid global central bank demand for the haven asset and anticipated Fed rate cuts. It projects prices to hit $3,000 by the end of 2025.
- Gold may rise in 2025 if major international central banks maintain monetary expansion. The Fed may continue to lower the policy rate in the absence of inflation shocks, likely pushing the yellow metal higher and causing US T-bond yields to go bearish.
- If the ECB and the Bank of England (BoE) aggressively ease policy, gold could still attract capital outflows from the Euro and the British Pound and maintain its strength against the USD, even if the Fed is hesitant to lower rates. Gold prices may also benefit from an improved Chinese economy.
China intends to implement a more proactive fiscal policy and an “appropriately loose” monetary policy to promote economic growth in the coming year, according to a meeting of the Politburo, the highest governing body of the Communist Party, held in early December.
Bearish outlook on the yellow metal
A de-escalation of geopolitical tensions in the Middle East and/or a resolution to the Russia-Ukraine conflict could cause a significant decline in gold prices. Trump’s “America First” stance raises the possibility that his administration will put domestic issues ahead of foreign ones.
- In this sense, Trump might make a concerted effort to start a resolution process during the first few months of his administration.
- The Fed’s hawkish stance on policy may impact gold prices in the upcoming year. Policymakers may decide not to lower interest rates if disinflation doesn’t improve and there is more uncertainty about the inflation outlook, particularly if Trump continues to impose higher tariffs.
- The Fed may take a more patient approach without fear of starting a recession unless there is a notable decline in the labor market.
- The most pessimistic predictions came from Barclays and Macquarie, who predicted that gold would drop to around $2,500 per troy ounce by the end of the year—about 4% below current levels.
- In its year-end outlook, Macquarie analysts wrote, “Our base case into 2025 is for gold to face ongoing pressure from US dollar strength but be supported by improved physical buying and steady official sector demand.” An average price of $2,795/oz would represent a 7% increase over the metal’s 27% value increase last year.
Central bank purchases leveled out last year following a strong price push by emerging market banks in 2022. After a six-month break, the People’s Bank of China declared in November that it would resume buying gold. Gold prices are also anticipated to rise because of the conflicts in the Middle East and Ukraine.
