Gold prices are expected to recover in the coming year, supported by persistent demand from Asian consumers, central banks, and its status as a safe-haven asset, market analysts predict. However, the return of President-elect Donald Trump to the White House could introduce significant volatility to the precious metal’s market.
Geopolitical tensions, including the Israeli-Hamas conflict and Russia’s invasion of Ukraine, have fueled gold’s recent price surges. However, after hitting a record high of $2,800 per ounce in late October, benchmark gold futures slid to $2,541.50 per ounce in November following Trump’s electoral victory, which boosted the U.S. dollar and bond yields, making gold less attractive.
Drivers of Gold’s Performance
Gold is typically seen as a hedge against inflation and a refuge during political instability. Koichiro Kamei, President of Market Strategy Institute, notes that investors had bought gold pre-election as protection against potential unrest but began offloading it after Trump’s decisive win.
The rally in U.S. equities, particularly tech stocks like Nvidia, also diverted investments away from gold, said William Rhind, CEO of GraniteShares. Yet, analysts believe Trump’s policies could catalyze a rebound, particularly if tariffs or budgetary decisions lead to inflationary pressures.
Predicted Price Movements
UBS forecasts gold prices could reach $2,900 by 2025 as institutional investors allocate more funds into gold for portfolio diversification. Persistent geopolitical uncertainties and strong central bank demand will likely support these gains.
Physical demand remains robust, with India and China accounting for significant portions of global gold purchases, despite high prices. In India, demand has been bolstered by reduced import taxes, while Chinese consumers are anticipated to increase purchases ahead of the Lunar New Year.
Central Bank Buying and Strategic Considerations
Central banks, particularly in emerging markets, have continued to stockpile gold to reduce reliance on the dollar. Analysts believe lower gold prices could further stimulate such purchases.
Unlike cryptocurrencies, gold serves a defensive purpose for risk management, Rhind noted, positioning it as a critical component of financial strategies amid global instability.
Despite current market fluctuations, analysts remain optimistic about gold’s long-term appeal, driven by its enduring role as a hedge and its diverse demand sources.
25th Nov 2024
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