Gold prices rose in the last few weeks fueled by geopolitical risks and significant central bank purchases, now up 28% year-to-date in US dollars. This recent momentum surge is driven by safe-haven demand, especially after recent events such as the Syrian rebels seizing Damascus and the subsequent geopolitical instability. China's central bank resuming bullion purchases in November after a six-month pause, also added to the appeal for the precious metal.
Gold's record highs in 2024 have been a result of a unique combination of geopolitical tensions, easing US interest-rate policies, and robust central bank buying. As we look forward to 2025, we see several compelling reasons to remain bullish on gold. Here are five reasons to bet on gold in the coming year.
1. Central banks: easing cycle & acting as a key gold buyer
Gold has shown impressive growth recently, and this trend is expected to continue in our view. One of the drivers should be central banks' easing cycle, which injects more liquidity into the market, often boosting gold prices. In our view, gold has the potential to push even higher next year, likely hitting a record high as major central banks continues to cut interest rates and central banks around the world add bullion to their reserves.
2. Economic policies
Inflationary policies and high budget deficits under recent administrations have also played a significant role in supporting gold prices. The fear of increasing government debt and possible trade wars further strengthens the case for gold as a safe-haven asset. In our view gold could rise to $3,000/oz if Chinese demand picks up or if President-elect Donald Trump's policies cause a deterioration in the US fiscal outlook.
3. Geopolitical tensions
Ongoing geopolitical tensions, especially in regions such as Ukraine and the Middle East, could further contribute to uncertainty, driving investors toward gold. Despite efforts to end conflicts, it's unlikely in our view that geopolitical risks will completely ease soon, maintaining upward pressure on gold prices.
4. Market trends
Short-term corrections in gold prices, due to factors such as a stronger USD, don't overshadow the long-term positive outlook. The combination of more accommodative central banks policies, inflationary fears, and high fiscal deficits, should create a favorable environment for gold. While the precious metal may struggle in the first quarter of 2025 due to a strengthening US dollar, in our view it stands to extend gains after that.
5. Strong investor demand
Both private and institutional investors are showing strong interest in adding gold to their portfolio allocation. And in that sense, there does appear to be further capacity. For instance, holdings of gold in exchange-traded funds are still 25% below their 2020 high, suggesting further potential for more purchases if demand was to pick up.
Key Technical Levels for Gold
Gold has slipped under its 50-day Simple Moving Average (SMA) at $2,638, falling into a slightly negative momentum.
