(Kitco News) - The start of the Federal Reserve’s new easing cycle has sparked fresh momentum in gold. While lower interest rates will continue to support investment demand, one Canadian bank sees gold’s growing importance as a global monetary metal as a bigger driving force for long-term prices.
Late Tuesday, commodity analysts at BMO Capital Markets published updated commodity price forecasts, highlighting that gold was their most notable upgrade ahead of the fourth quarter.
In the near term, the bank sees gold prices averaging around $2,700 an ounce in the fourth quarter, up 15% from its previous forecast of $2,350 an ounce. Gold trading at record highs is already within striking distance of BMO’s new price target. December gold futures last traded at $2,687.20 an ounce, up 0.38% on the day.
Looking at gold over the next 12 months, the Canadian bank sees prices averaging in 2025 around $2,663 an ounce, a 21% jump from its previous estimate of $2,200. The bank also updated its long-term price forecast to $1,900, up 15% from $1,650 an ounce.
BMO noted that Federal Reserve rate cuts, which are now leading the global easing trend, will be bullish for gold; however, the analysts are paying more attention to the precious metal’s role as a global currency.
The analysts said it is clear that “Gold is being brought back into the monetary system as the trend towards de-dollarization of trade accelerates.”
BMO said it expects gold’s role as a global trade currency to continue to grow in 2025 as the global economy slows. They continue to monitor China as it asserts its dominance in global trade.
“In our view, wider markets still underappreciate China’s trade pivot to emerging markets. Moreover, closely linked to this is the rapid de-dollarization of trade,” the report said.
BMO noted that international use of the renminbi, while still relatively low, hit an all-time high this year. The analysts added that they expect trade in renminbi to continue growing in the coming years.
“Notably, over 50% of China’s inbound and outbound transactions used the RMB in recent months, and in our view, this is crucial for the gold market. Given China’s pivot to emerging markets, and the struggles that many commercial banks have in obtaining access to RMB, we see this as crucial for gold, which is being used as a medium of trade to back RMB-denominated transactions,” the analysts said.
However, it’s not just China that continues to diversify away from the U.S. dollar. BMO pointed out that the other BRICS nations—Brazil, Russia, India, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates—are also shifting away from the U.S. dollar.
BMO warned that the new mBridge project, backed by the Bank for International Settlements, could be a game changer for gold and the entire commodity complex. The project will create a multi-central bank digital currency (CBDC) platform to support real-time, peer-to-peer, cross-border payments and foreign exchange.
“Reports suggest the mBridge unit of trade will consist of 60% of BRICS currencies and 40% of gold, which would have to be held in an escrow account. Given the sheer volume of trade this could cover, and with key nations such as Saudi Arabia signing up, this could have huge implications for gold demand over the coming years,” the analysts said.
At the same time, a weakened U.S. dollar, diminished by a reduced role as the world’s reserve currency, would also push broader commodity prices higher.
While gold’s future has significantly brightened, the Canadian bank is not as optimistic about other precious metals. BMO only slightly raised its price target for silver.
BMO sees silver prices averaging around $30 an ounce in the fourth quarter, up 5% from its previous forecast of $28.50 an ounce. Looking to next year, the analysts see the precious metal averaging around $27.30 an ounce in 2025, up 4% from the previous estimate of $26.30.
Long term, the bank sees silver prices averaging around $24.50 an ounce, up 11% from the previous estimate of $22 an ounce. The bank is optimistic that growing industrial demand will continue to support silver; however, investment demand could continue to struggle.
“In contrast to gold, we see investment demand as more driven by retail-led micro asset allocation rather than macroeconomic fund flows. Hence, one challenge silver will have to face is the steady growth in investment options available to retail investors, particularly in emerging markets,” the analysts said.
