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As 2024 comes to a close, gold is shining bright, delivering nearly 27% returns for the year; Will it reach fresh highs in 2025?
Gold gains 27% in 2024 to beat S&P 500 and Nifty 50
As 2024 comes to a close, gold is shining bright, delivering nearly 27% returns for the year, outperforming both the Nifty 50 and the S&P 500 indices, fueled by geopolitical tensions that enhanced the safe-haven appeal of the precious metal.
This has been gold’s best year since 2010, and the outlook remains optimistic. “A similar rally could take place in 2025, though it will depend largely on geopolitical developments,” said Zain Vawda, market analyst at MarketPulse, projecting a base case for gold to reach $2800 per ounce.
Looking ahead, the strengthening US dollar, driven by President-elect Donald Trump’s inauguration and anticipated policy changes, has somewhat dampened gold’s rally since November. The potential for higher tariffs on American imports may stoke inflationary expectations, as reflected in US Federal Reserve Chair Jerome Powell’s remarks, which hinted at fewer rate cuts in 2025 due to concerns over high inflation.
In Q3, global demand for bullion surpassed $100 billion for the first time. Several factors have driven gold prices to record highs this year, including rising geopolitical risks in the Middle East, the ongoing war in Ukraine, and the fall of Bashar al-Assad’s regime in Syria, all of which have increased gold’s appeal as a safe-haven asset.
Additionally, central banks have been significant buyers of gold this year, supporting higher prices. While demand from central banks is expected to be lower than in 2022-2023, they will still remain net buyers of bullion. Central banks have been net buyers of gold for nearly 15 years, starting in Q2CY09. Any decline in this demand could exert pressure on gold prices in 2025.
The US Federal Reserve’s rate cuts have made gold more attractive by reducing the opportunity cost of holding bullion. Investors seeking protection from inflation have also turned to gold, further driving up its price.
Outlook For 2025
Looking ahead, the US Dollar, which is near two-year highs, will be a key factor for precious metals in 2025. Forecasts for gold remain bullish, with UBS predicting a price of $2,900 per ounce by the end of 2025, while Citi, Goldman Sachs, and JPMorgan have set targets of $3,000 by December 2025.
Gold hit an all-time high of $2,788.54 per ounce on October 30, 2024. This year has underscored gold’s value as a store of wealth and a hedge against uncertainties, with the total market capitalization of all the gold ever mined estimated at around $17.7 trillion.
As we move into 2025, Jerome Powell has indicated that the Fed’s base case includes two rate cuts, with inflation expected to soften but remain above target. European central banks are also likely to cut rates similarly.
The World Gold Council (WGC) forecasts a rangebound year for bullion. “If the economy performs according to consensus in 2025, gold may continue to trade within a similar range to that seen in the latter part of this year, with some potential for upside,” the WGC stated in its Outlook 2025 report. Key risks for gold include higher interest rates and lower economic growth.
Gold may face competition from equities and real estate in Asia in 2025, with demand in China contingent on economic growth rates. However, demand in India is expected to remain stable, as the country is less likely to be affected by a potential tariff war with the US. “Economic growth in India is expected to stay above 6.5%, and any tariff increases will likely have less impact on India than on other US trading partners, given its smaller trade deficit, which could support gold consumer demand,” the WGC noted.
It’s also worth noting that India’s trade deficit surged to an unprecedented $37.8 billion in November, largely driven by a four-fold increase in gold imports. The Commerce Ministry is investigating this data in collaboration with the Central Board of Indirect Taxes and Customs (CBIC), with a formal clarification expected soon.