After encountering a turbulent last week where prices had fallen by 4.6%, gold seems to have regained some of its momentum.
Though prices have climbed more than 30% this year, experts at Commerzbank AG believe that there is only a slight upside potential for 2025.
Gold prices have been supported by several positive factors in 2024 with increasing geopolitical tensions and lower interest rates, boosting sentiments.
On COMEX, the gold price had touched a series of record highs over the last few months.
In October, the contract had breached $2,800 per ounce for the first time ever.
Source: TradingView & Fxstreet
However, in the subsequent weeks, the dollar’s surge against a basket of major currencies has halted the rally in prices.
However, even though Commerzbank said that it expects only a slight upside potential from current levels, Goldman Sachs remained bullish about the yellow metal’s prospects.
The divergent views on the gold market are expected to keep investors on their toes in the coming months.
Gold likely to move in tandem with Fed policy
Even as the market anticipated higher gold prices in the coming months and throughout 2025, much of it will depend on the US Federal Reserve.
The US central bank started its rate-cut cycle in September with a blockbuster cut of 50 basis points.
Also, it marked the first time the bank had cut rates in more than four and a half years.
The optimism over lower interest rates benefitted gold, but sticky inflation and a resilient labour market had prompted the Fed to slow down the rate-cut cycle at its November meeting.
The bank only cut rates by 25 bps, and the likelihood of further cuts at its December meeting is now dissipating.
By mid-2025, the market expects Fed interest rates to fall to 4%, according to Commerzbank AG.
“This is in line with our economists’ forecast. We therefore confirm our price forecast of USD 2,600 per troy ounce in the first half of 2025,” Carsten Fritsch, commodity analyst, said.
The German bank expects gold prices to average $2,650 per ounce in the second half of 2025.
The forecast was revised upwards from $2,600 previously, the bank said.
Fritsch added:
US inflation is likely to rise noticeably due to the expected tariff policy of US President-elect Trump, without the Fed reacting by tightening monetary policy.
Trump’s policies to accelerate US inflation
After Donald Trump’s victory in the 2024 US presidential election, gold prices tumbled from their recent peaks.
As Trump is likely to raise tariffs on all imported goods to the US, especially from China, this would likely feed into higher inflation.
Higher prices in the US are likely to translate into accelerating inflation, which may prompt the Fed to slow down its rate-cut cycle.
Elevated rates work against gold as it is a non-yielding asset.
Higher rates would mean investors would be more attracted towards bonds.
However, some analysts believe that persistently higher inflation could also eventually mean more demand for gold. Investors use gold to hedge against inflation.
Moreover, Trump may also put pressure on the Fed to ease monetary policy to support his expansionary plans for the US economy.
Traders and investors are focused on the President-elect’s proposed “America-First” policies, but Goldman Sachs said these policies could also support gold prices through 2025.
Goldman Sachs’s ambitious projection
Goldman Sachs earlier this week had predicted that gold prices would hit $3,000 per ounce by the end of 2025.
Source: TradingView & Kitco
While Donald Trump’s election victory and a Republican Party sweep through Congress triggered some selling and profit-taking in the gold market, the investment bank noted that the factors driving gold to record highs have not disappeared, according to a report by Kitco.com.
The investment bank said in a note:
The structural driver of the forecast is higher demand from central banks, while a cyclical lift would come from flows to exchange-traded funds as the Federal Reserve cuts.
Although central banks around the world have slowed their purchases of gold in the third quarter of 2024, demand is likely to remain consistent in the future with nations continuing to diversify their official reserves away from the dollar, Kitco.com said in a report.
Additionally, Goldman Sachs noted that the US government’s growing debt is likely to prompt the Fed to increase their holdings.
“An unprecedented escalation of trade tensions could revive speculative positioning in gold,” Goldman Sachs said.
Rising geopolitical crisis
Gold’s safe-haven demand is also expected to keep traders interested in the yellow metal next year.
As tensions escalate between Russia and Ukraine, and in the Middle East, the risk-on sentiment is likely to decline, paving the way for commodities such as gold and silver.
Commerzbank’s Fritsch said:
Further arguments in favour of a rising gold price are the numerous geopolitical crises, the ongoing gold purchases by central banks and the prospect of significantly higher budget deficits in the US and other Western countries.
Recently, tensions have escalated between Russia and Ukraine as the reports claimed that the latter has been allowed by Washington to use US-made weapons in the ongoing war against Moscow.
Russian President Vladimir Putin has warned that the threshold for using nuclear weapons has significantly declined as a result.
Prospects of further escalations could sharply increase safe-haven demand, benefitting gold in 2025.
In such a scenario, gold could be on its way to breaking more records next year.
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