Gold prices performed exceptionally well in 2024, outperforming all major asset classes and proving to be a strong portfolio diversified. Gold rose 25.5 percent in 2024 due to its role as an effective hedge against the heightened geopolitical uncertainty and market volatility experienced this year.
With the beginning of 2025, market consensus expectations suggest a more modest performance for gold prices this year but with the potential for upside catalysts as the year unfolds.
Factors that may support gold prices in 2025 include stronger-than-expected central bank demand or rapid deterioration of financial conditions leading to flight-to-quality flows. Conversely, a reversal in monetary policy, leading to higher interest rates, would likely bring challenges. In addition, China’s contribution to the gold market will be key since consumers have been on the sidelines while investors have provided support.
2024 marks record year for gold
According to the World Gold Council’s latest report, the LBMA Gold Price PM set 40 new all-time highs (ATH) last year, the most recent of which was $2,777.80 on October 30, 2024. Total gold demand in the third quarter of 2024 surpassed $100 billion for the first time.
The report attributed this surge in gold prices to several factors including strong investor demand, which offset declining consumer demand. Heightened geopolitical risk due to increased conflicts, along with a busy electoral year across the world further supported this surge. Periods of opportunity costs when markets saw lower yields and a weakening U.S. dollar also were supportive of the rise in gold prices last year.
Central banks around the world also continued to play a leading role in the demand for gold. November was a solid month of gold buying as central banks collectively added a net 53 tons to global official holdings, according to the latest data. This extends the broader trend observed throughout this year where central banks, mostly from emerging markets, have remained keen buyers of gold, driven by the need for a stable and secure asset amid global economic uncertainties.
Factors impacting gold prices in 2025
Several factors may impact the movement of gold prices in 2025 including:
Monetary policy
The market’s focus this year is on President-elect Donald Trump’s second term which may provide a boost to the local economy but could equally raise concern among investors globally. As for monetary policy, market consensus suggests that the Federal Reserve will deliver 100 basis points in cuts by the end of the year, with inflation softening but still above target. European central banks will also likely cut rates by a similar amount.
Historically, gold prices have risen by an average of 6 percent in the first six months of a rate-cut cycle. Its subsequent performance has been influenced by the length and depth of that cycle. Overall, a more dovish Fed will be beneficial for gold prices in 2025, but a prolonged pause or policy reversal would likely put further pressure on investment demand.
U.S. dollar
The U.S. dollar is expected to remain flat or slightly weaken as conditions normalize, while global growth remains positive but continues to grow below trend. Therefore, the actions of the Fed and the direction of the U.S. dollar will continue to be important drivers for gold prices. In line with historical trends, these two are not the only factors that determine gold’s performance.
The World Gold Council suggests that if the economy were to perform according to consensus in 2025, gold prices may continue to trade in a similar range to that seen in the last part of the year, with the potential for some upside.
New U.S. administration
Trump starts his second term in late January but the U.S. stock market is already banking on a pro-business agenda with almost a 7 percent increase since early November. Tech stocks have done even better. A more business-friendly fiscal policy combined with an America-first agenda is likely to improve sentiment among domestic investors and consumers. This will likely favor risk-on trades in the first few months of the year.
However, concerns about European sovereign debt are once again mounting and continued geopolitical instability persists, particularly in light of the events in South Korea and Syria in early December. This could prompt investors to look for hedges, such as gold, to counter risk.
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Potential trade wars
China and India are gold’s largest markets. More generally, Asia makes up more than 60 percent of annual demand. This year, Asian investors added to gold’s performance, particularly during the first half of the year, and Indian demand benefitted from the reduction in import duty in the second half.
However, the risk of trade wars looms large. Chinese consumer demand will likely depend on the health of economic growth. While the same factors that influenced investment demand in 2024 are still present, gold prices may face competition from stocks and real estate in 2025.
Central bank buying
Central banks have been net buyers of gold for almost 15 years. In an environment of ever-increasing sovereign debt and geopolitical uncertainty, gold’s role is well-cemented. While central bank demand will likely end 2024 below previous records, it has remained strong, positively contributing to the performance of gold prices to the tune of 7–10 percent.
Central banks will remain an important factor impacting gold prices in 2025. Central bank buying is policy-driven and thus difficult to forecast, but World Gold Council surveys and analysis suggest that the current trend will remain in place. Demand in excess of 500 tons should still have a net positive effect on gold’s performance. The World Gold Council also believes that central bank demand in 2025 will surpass that but a deceleration below that level could bring additional pressures to gold.
