(Kitco News) - Gold's long-term uptrend remains intact; however, the precious metal is currently priced to perfection, making it vulnerable to a significant selloff before the end of the year, according to one research firm.
In his latest precious metals report, David Oxley, Chief Climate and Commodities Economist at Capital Economics, raised his 2025 gold price forecast to $2,750 an ounce. However, he cautioned that prices will not rise in a straight line.
Oxley maintained his 2024 year-end price target of $2,200 an ounce. At current levels, the market could experience a 12% drop in the coming months. December gold futures last traded at $2,538 an ounce. In recent weeks, the gold market has faced strong resistance at $2,550 an ounce.
"Even though we now forecast gold prices to end next year about 10% higher than their current level, the path between now and then is unlikely to be smooth. In fact, we believe it’s more likely than not that gold prices will fall—potentially sharply—before rising again," he said. "More broadly, in a year when gold prices have climbed steadily, a pullback is not out of the question."
Oxley noted that it could be challenging for gold to move higher as market expectations for aggressive rate cuts by the Federal Reserve continue to diminish. According to the CME FedWatch Tool, markets see only a 17% chance of a 50-basis-point cut next week.
Market expectations dropped sharply after a softer-than-expected inflation reading. On Wednesday, the U.S. Bureau of Labor Statistics reported that headline inflation over the past 12 months rose by 2.5%, down from July’s 2.9%. Annual core inflation rose 3.2%, in line with expectations.
While gold may face headwinds in the short term, Oxley said its long-term bullish outlook remains intact.
"From an economic perspective, the opportunity cost of holding zero-yielding gold will decline as monetary easing cycles gain momentum over the next 12-18 months. Moreover, if the U.S. dollar continues to weaken in 2025, as we predict, this would typically be expected to support demand and prices outside the U.S.," he said. "Additionally, there seems to be ample room for central banks—not least the PBoC—to continue adding gold to their reserves."
