Gold 2025 outlook: What’s next?
Gold: What’s next?
2024 has been a magnificent year for gold. It is higher by 28% YTD and has appreciated by more than the S&P 500. It also hit a record high at the end of October, however, it has wavered since then and did not rally in line with other asset classes after the election of Donald Trump.
However, as we move into 2025, analysts generally remain supportive of the gold price in the coming year. The Comex gold futures contract for December 2025 is currently trading at $2775 per troy ounce, more than $100 higher than where the gold price currently trades. Some Wall Street analysts are also predicting that the gold price could surge to $3000 per ounce at some point next year.
There are three main reasons why the gold price could find support in 2025.
Political risks
2024 saw a huge amount of elections around the world, and there are more election risks around the corner. Recent events in France and South Korea will likely lead to fresh elections in 2025, added to this, Germany is scheduled to have an election in February.
Although geopolitical events in 2024 have mostly been due to domestic factors, for example, the martial law in South Korea, next year could see powerful global forces add to political risks. For example, if Donald Trump’s trade policies become disruptive, then we could see global growth take a hit, budget deficits could rise around the world, and inflation may also linger. This could trigger more gold buying.
Inflation and growth risks
Gold is a traditional inflation hedge. Some have argued that President elect Trump’s economic policies could trigger inflation. His proposed import tariffs are a distortive way to raise revenue, according to the non-partisan Tax Foundation. They see import tariffs as offsetting two thirds of the long run economic benefits from Trump’s tax cuts, as tariffs invite foreign retaliation. A new trade war would erode GDP to the tune of 1.7% of GDP, according to the Tax Foundation. The Bloomberg contributor composite CPI forecast is for annual CPI to fall to 2.4% in 2025 and to rise slightly to 2.6% in 2026. The core PCE rate is expected to be 2.3% in 2024. Thus, CPI is not expected to fall back to the Fed’s 2% target rate in the coming year. Weak growth and strong inflation is prime territory for gold bulls.
The Dollar
As you can see in the chart below, the gold price and the dollar index have tended to move in opposite directions since 2010. This means that when the dollar falls, the gold price can rally. This is to be expected, gold is priced in dollars, so when the value of the dollar falls, you need more dollars to buy an ounce of gold.
Bloomberg’s composite FX forecasts for next year see the dollar falling vs. the euro after Q1, the yen is also expected to recover vs. the USD, and the pound is expected to climb to $1.30 by 2026. Thus, a weakening of the dollar could also boost the gold price in 2025.
Chart 1: Gold and the Dollar Index
Source: Bloomberg and XTB - Past performance is not a reliable indicator of future results.
From a demand perspective, the World Gold Council reported that gold demand increased by 5% YoY in Q3 2024. Central bank purchases of gold may have slowed in the third quarter of 2024; however, it was one of the key pillars of gold demand in the first half the year. Demand for gold ETFs also surged in Q3, mostly from Western investors. Global investment demand doubled year on year in Q3 to 364 tonnes, led by ETF demand, which rose by 95 tonnes in Q3, the first positive quarter for ETF demand since Q1 2022. This trend could continue, and investors may pick up the slack if central banks move to the sidelines in 2025. Thus, demand factors could also boost the gold price in 2025.
Author
Kathleen Brooks
XTB UK
Kathleen has nearly 15 years’ experience working with some of the leading retail trading and investment companies in the City of London.
