(Kitco News) – Even though the inflation picture is unclear and jewelry demand could weaken in some areas, the overall outlook for gold prices next year is positive, according to analysts at Heraeus Precious Metals.
In their Precious Forecast 2025, the analysts noted that monetary policy has entered a rate-cutting cycle, and the strong prospect of a U.S. recession likely means even more rate cuts.
“Central banks are cutting interest rates because inflation has eased, and this is expected to support economic growth,” they said. “However, if the US Treasury yield curve is a guide, and it has been reliable in the past, then the US should be heading for a recession in 2025. That would mean more rate cuts, the probability of a weaker dollar and would be supportive for gold as real interest rates fall.”
“With Trump returning to the White House, geopolitical tensions may ease if there is a resolution in Ukraine, but trade tensions could rise,” they added. “Along with investment flows, central bank gold purchases are likely to remain robust in 2025 and give a solid base of demand, even if more price-sensitive jewellery demand eases.”
Heraeus expects that the trends that propelled gold prices to record highs in 2024 will continue in 2025. “Central banks are likely to continue to purchase gold although perhaps not at the very high levels seen over the last few years,” the analysts wrote. “ETF investors have come back to gold in the second half of 2024 after selling down their holdings for more than two years. Jewellery demand has fallen as the price has risen but it has remained robust in India and, if the Chinese government’s stimulus measures help to boost the economy, the two largest jewellery-buying nations could be a solid base for demand in 2025. Geopolitical risks remain, and with Trump returning as US president, there could be more uncertainty around trade and tariffs.”
The inflation picture is murkier, as recent falling price pressures could run into new inflationary policies next year. “Inflation has been easing and many central banks are in a rate-cutting cycle,” they said. “However, president-elect Trump’s proposals include unfunded tax cuts, looser regulations and trade tariffs which could all prove to be inflationary. The US government continues to run sizeable budget deficits, US debt is growing ever larger and interest payments have jumped.”
“While recent rate cuts ease that pressure to some extent in the short term, there is no sign of a retrenchment in government spending, so the US will most likely need to inflate away the debt which will ultimately be beneficial for gold,” they said.
In terms of investment, Heraeus sees demand for gold rising in 2025. “ETF investors added 95 tonnes of gold to their holdings in the third quarter following nine consecutive quarters of net sales,” the analysts wrote. “The knee-jerk reaction following Trump’s election win was for the dollar to strengthen and gold was sold off. This may have been an excuse for some profit-taking after a very strong run-up in the gold price. However, in the medium term, interest rate cuts, a weaker dollar and the prospect of ongoing inflationary pressures should see more investors turn to gold as a store of value.”
Turning to sovereign demand, the analysts see central banks continuing to buy gold. “In 2024, central bank gold purchases are on track for another strong year, although they may fall short of the more than 1,000 tonnes acquired annually in 2022 and 2023,” they noted. “A World Gold Council’s survey showed the highest proportion yet of central banks planning to add to their gold reserves. Interest rate levels, inflation and geopolitical issues remain the top three considerations for central banks, so gold purchases are likely to remain elevated in 2025.”
Jewelry demand is also expected to be robust next year, with India potentially reclaiming the number-one spot from China for gold jewellery demand in 2025.
“India is predicted to have the fastest growth among the large economies next year,” the analysts said. “Consumers have still been buying gold despite the high gold price and that could continue while the economy remains robust. Jewellery demand in China has slumped in 2024 as consumers continue to struggle in a tough economic environment.”
“Overall, global jewellery demand is likely to dip next year as consumers are deterred by the high price,” they added. “However, much will depend on whether the situation improves in China, now that some stimulus measures have been introduced by the government.”
Heraeus forecasts the spot price of gold to trade between $2,450 and $2,950 per ounce in 2025.
“The US Treasury yield curve uninverted in September,” they noted. “This has been accurate in predicting recessions previously, although the time lag to the recession has been variable in the past. If Trump’s policies prove inflationary but do not hold off a recession, that could put the Fed in a difficult position. However, the Fed is likely to err on the side of the economy and cut rates, particularly as higher inflation helps with the US’s debt situation.”
“Further rate cuts will weaken the dollar and result in real interest rates becoming less positive, which would support a higher gold price,” they concluded.
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