Gold Year End Wrap-up & Outlook 2025

In 2024, the gold market experienced a remarkable surge, with prices increasing by approximately 29% through the year. This significant appreciation allowed gold to outperform US equities by about 2.6%, hitting multiple highs culminating in a final all-time high price of $2,790 per troy ounce. The year commenced with gold priced at $2,063 per ounce, and as the months progressed, it demonstrated a steady upward trajectory, ultimately trading around $2,660 at the end of the calendar year. Several factors contributed to this bullish trend, including heightened geopolitical tensions, interest rate cuts, election outcomes leading to anticipated macro changes, and continuing trend of diversification of reserves and investments into gold.

Central banks demonstrated continued interest in gold, collectively purchasing over 882 tons of gold, lower than 1,000+ tons of last 2 years with one month left to the finish. The uptrend was significantly influenced by the Federal Reserve's announcement of multiple rate cuts aimed at controlling rising inflation, which catalysed a bullish run for gold that began shortly after the first announcement in September. By the end of 2024, the Federal Reserve announced a total of 100 basis points in rate cuts implemented over three separate meetings Concurrently, geopolitical tensions in Eastern Europe and the Middle East continued to escalate, creating a complex landscape that further impacted gold prices. The instability in these regions proved to be a critical factor influencing market sentiment and demand for the yellow metal. Additionally, the re-election of Donald Trump as President had a notable effect on gold prices, which experienced a decline of approximately 6.6% within a few weeks following the election. This downturn was similar to his last election victory and so was the recovery that soon followed.

Outlook

The surge in gold prices is anticipated to persist into 2025, with the trajectory expected to be influenced significantly by the return of President Donald Trump to office, which could herald a series of policy changes and strategic decisions. Unveiling of initial Trump policies may bring cheer to the US economy and the dollar but may not last long as it economic underpinnings will lead to execution challenges. Central to this agenda is the emphasis on "America First," which may involve the imposition of tariffs and other trade measures, particularly targeting countries such as China. Such policies are likely to reshape the economic landscape, impacting both the U.S. dollar and the gold market. The focus on domestic production and self-sufficiency could be inflationary and also enhance volatility in currency markets, further driving investors toward gold.

Trump policies could either be deflationary in case he is able to extract good delas for America through his tariff threats or could be very inflationary if it ends up driving increased manufacturing / higher tariffs imports in the US. However, in both scenarios the underlying deficits with trading partners are likely to reduce. This in turn means there would be reduced sharing of US growth with other economies and thereby an incentive to move away from the US. We have seen countries try to diversify away from the dollar from a trade and reserves perspective and such weaponizing policies could exacerbate the trend.

Throughout 2024, gravitating inflation and inching up unemployment rates have posed significant challenges for the Federal Reserve, calibrating a series of interest rate cuts. While inflation appears to be stabilizing and unemployment rates have shown a upward trend, these economic indicators remain critical in assessing the future trajectory of both the economy and financial markets.

By the year end, Federal Reserve in their view avoided a recession while managing inflation expectations fostering an optimistic outlook for the U.S. economy moving forward. Consequently, the pace of monetary easing is anticipated to decelerate, with only a couple of rate cuts projected for 2025. Federal Reserve Chair Jerome Powell emphasized that future rate adjustments will be driven by empirical data rather than current circumstances. Furthermore, he indicated that the formulation of monetary policy will be significantly influenced by the policies implemented by the Trump administration and their subsequent impact on inflation. Fed once again seems to be claiming victory too soon, remember the Transitory inflation in the aftermath of Covid. With money supply decelerating and the threat of inflationary pressures along with disruptive policies may impact the economy adversely leading to sharper cuts in interest rates despite inflation which would be bullish for gold. European central banks are anticipated to follow suit with comparable rate reductions. As these monetary policies unfold, the U.S. dollar is projected to remain relatively stable at best or probably depreciate as economic conditions normalize. Meanwhile, global economic growth is expected to remain positive, albeit continuing to lag below trend levels. This complex interplay of economic factors will be pivotal in shaping market dynamics and influencing investor sentiment towards gold, should incrementally be positive over the medium term.

While President Trump has expressed a favourable stance toward cryptocurrencies, including Bitcoin, the extent to which these digital currencies can gain acceptance among other nations remains uncertain. The potential for cryptocurrencies to replace traditional commodities like gold is still a matter of debate, as their lack of intrinsic value, stability and regulatory acceptance vary widely across different jurisdictions. Consequently, the interplay between U.S. economic policies, currency fluctuations, and the evolving landscape of digital assets will be critical factors influencing gold's performance, positively in our view, in the coming year.

In 2024, geopolitical tensions in Eastern Europe, particularly the ongoing conflict between Russia and Ukraine, as well as unrest in the Middle East involving Israel and Iran, continued to create significant volatility in global markets, impacting both gold prices and the U.S. dollar. The situation was further complicated by US endorsement of Ukraine's use of U.S. missiles, which added layers of uncertainty to the conflict and its potential ramifications. Additionally, escalating unrest in regions such as Syria and South Korea has heightened global instability, contributing to an environment of increased risk.

As we look ahead to 2025, it is anticipated that the year will be marked by further geopolitical developments that could profoundly influence both the U.S. dollar and gold prices. In times of rising uncertainty and risk, investors are likely to seek refuge in gold, which could lead to surge in its price. This dynamic underscore the intricate relationship between geopolitical events and market behaviour, highlighting the importance of monitoring these developments as they unfold.

With potential shifts in monetary policy, including lower interest rates, gold may become more attractive. This could lead to increased demand from investors seeking stability amid economic uncertainty and geopolitical tensions, particularly in regions like Eastern Europe and the Middle East. Central banks are likely to continue their gold purchasing strategies, further supporting prices. Overall, the combination of these elements suggests that gold will remain a vital asset, with the potential for growth as investors navigate a complex global landscape.

Source: WGC, RBI

Above article is authored by Quantum.

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