(Kitco News) - Investment demand for gold may struggle in 2025 as a solid U.S. economy supports the dollar and ends the Federal Reserve’s easing cycle. However, this won’t stop the precious metal from reaching new highs next year, according to commodity analysts at Wells Fargo.
John LaForge, Head of Real Asset Strategy at Wells Fargo, said that heading into 2025, investors should have exposure to a broad basket of commodities. He added that he recommends investors embrace a dumbbell strategy, with oil as the cheapest commodity on one end and gold on the other.
Wells Fargo expects gold to end next year between $2,800 and $2,900 an ounce. Meanwhile, West Texas Intermediate (WTI) crude oil prices are forecast to end the year between $85 and $95 a barrel.
The bank’s bullish outlook comes as it also expects the Federal Reserve to cut rates only once next year as inflation pushes back above 3%.
As markets prepare for a shorter easing cycle that could support the U.S. dollar, LaForge noted that next year will mark the fifth year of his commodity supercycle. He explained that although commodity prices have struggled longer compared to other supercycles, the sector continues to see strong fundamental support as demand outstrips supply.
“In our view, the commodity bull supercycle remains intact as global demand seems set to recover and tight supply conditions across many key commodities persist,” LaForge said in his commodity forecast.
The bank also favors commodities as a hedge against unexpected event risks. Tracy McMillian, Head of Global Asset Allocation, said she prefers commodities over the U.S. dollar.
“We see 2025 really shaping up to be a year where event risks are likely to garner headlines. In an environment like this, it is possible that investors could be spooked and make costly long-term investment decisions,” she said. “So we're telling investors: rather than being heavily invested in cash to hedge against those types of risks, look at things like commodities as an alternative.”
At first glance, an economic environment with robust growth, higher inflation, and a shorter easing cycle doesn’t seem ideal for gold. However, LaForge said the precious metal isn’t being driven by investment demand.
He expects central bank demand from emerging markets to drive the precious metal higher next year.
“Gold is being driven, frankly, by emerging market central banks and consumers who want to protect themselves in a world full of debt,” he said.
LaForge noted that gold can be a chameleon asset, influenced by the U.S. dollar, interest rates, and market sentiment. However, he pointed out a significant shift since 2022 when the U.S. government weaponized the dollar by sanctioning Russia after it invaded Ukraine.
“Since then, emerging market central banks have been saying, ‘Maybe we’ll take a little bit of this extra that we have, and instead of putting it into Treasuries, we’re going to put it into gold,’” he said.
Although central banks have bought significant amounts of gold since 2022, LaForge said there is still room for reserves to grow.
“Most of the emerging markets that have gold on their balance sheets still hold a very small percentage—one, two percent at most,” he said. “I think this trend still has legs.”
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