Gold is likely to remain rangebound in 2025 if existing market expectations are correct, a World Gold Council (WGC) outlook for the yellow metal in 2025 has said.
However, a combination of higher rates and lower economic growth could “negatively affect” investors and consumers, it said in the outlook put out by its research team.
The negative impact could be particularly evident in Asia. Conversely, significantly lower interest rates or a deterioration in geopolitics or financial market conditions will improve gold’s performance, the WGC said.
While the precious metal is poised for its best annual performance in over a decade—up 28 per cent till November this year—all eyes are focused on what US incoming President Donald Trump’s second term mean for the global economy.
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Nervousness for investors
Stating that Trump’s second term may boost the US local economy, the WGC said it could equally elicit a fair degree of nervousness for investors around the world.
“As we look into 2025, market consensus suggests that the Fed will deliver 100 basis points (bps) in cuts by the year-end (2025), with inflation softening but still above target,” the WGC said. European central banks will likely cut rates by a similar amount. The US dollar is expected to remain flat or slightly weaken as conditions normalise, while global growth may remain positive but continue to grow below trend, said the Gold Outlook – Navigating rates, risk and growth.
The actions of the US Fed and the direction of the dollar will continue to be important drivers for gold. “But just as the past few years have shown, these two are not the only factors that determine gold’s performance,” it added.
4 key drivers
Stating that it relies more on a robust framework that allows capturing the contribution of all sectors of gold demand and supply, the WGC outlook said the precious metal’s final price performance will depend on the interaction of four key drivers—economic expansion, risk,opportunity cost, and momentum, it said.
“Our analysis based on QaurumSM suggests that if the economy were to perform according to consensus in 2025, gold may continue to trade in a similar range to that seen in the last part of the year, with the potential for some upside,” it said. (Qaurum is an interactive tool that makes understanding gold performance easier and more intuitive. It enables investors to determine gold’s implied returns under a range of economic scenarios.)
Trump will begin his second term in late January but the US stock market is already banking on a pro-business agenda with a nearly 7 per cent increase since early November.
“Tech stocks (and the Magnificent 7) 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,” the WGC said.
Hedging by investors
This will likely favour risk-on trades in the first few months of the year. However, the question is will these policies would result in inflationary pressures and disruptions to supply chains.
In addition, concerns about European sovereign debt are once again mounting, not to mention continued geopolitical instability, particularly in light of the events in South Korea and Syria in early December. All this could prompt investors to look for hedges, such as gold, to counter risk, the WGC said.
On Asian demand, the body of gold producers said China and India are the largest markets for the yellow metal. Asia makes up over 60 per cent of annual demand (excluding central banks).
In 2024, Asian investors added to gold’s performance, particularly during the first half, and Indian demand benefitted from the reduction in import duty in the second half, said the WGC Outlook.
“However, the risk of trade wars looms large. Chinese consumer demand will likely depend on the health of economic growth—whether through normal means or government stimuli,” it said. While the same factors that influenced investment demand in 2024 continue, gold may face competition from stocks and real estate.
India on better footing
India seems to be on a better footing. “Economic growth remains above 6.5 per cent, and any tariff increase will affect it less than other US trading partners given a much smaller trade deficit,” said the outlook.
This could support consumer demand. “At the same time, gold financial investment products have seen remarkable growth and while they make up a small portion of the overall market, they have been a welcome addition to gold’s ecosystem,” said the WGC.
Central banks’ purchases will remain an important part of the gold puzzle. The current trend will remain in place as central bank demand in 2025 will exceed 500 tonnes. “But a deceleration below that level could bring additional pressures to gold,” the WGC Gold Outlook said.
