(Kitco News) - Gold and silver are expected to remain key commodities to hold in 2025, and they are two of only a handful of metals that one Canadian bank is upgrading ahead of the new year.
Commodity analysts at BMO Capital Markets warned investors that they made slightly more downgrades than upgrades in the broader commodity sector for 2025. The analysts said the growing trend of deglobalization could slow the economy and weigh on industrial demand for some metals.
“There is no getting away from the fact that tariffs are not helpful to the metals and mining sector,” the analysts said in the report published Monday. “While final structures will not be known until next year, in our view, metals and bulk commodity markets had generally factored bilateral U.S.-China tariffs into demand projections, but not a multilateral trade war that drags in Canada, Mexico, Europe, and key Asian economies. As such, we are now running lower demand estimates than was the case three months ago. Moreover, should trade friction escalate further, there would be enhanced downside risk to our demand forecasts.”
The analysts noted that the potential for a global trade war will continue to fuel geopolitical uncertainty, providing further momentum for the gold market.
“We expect the push for de-dollarization of trade to re-emerge in Q2 as trade friction grows, and this could push gold to new nominal highs,” the analysts said.
BMO sees gold prices averaging around $2,750 an ounce in 2025, up 3% from its previous estimate. In a quarterly breakdown, the analysts expect prices will peak during the summer, averaging $2,850 an ounce in the third quarter.
While a trade war would support gold’s role as a safe-haven asset, the analysts note that President-elect Donald Trump’s America-first policies could be a double-edged sword that drags down gold as much as it supports it.
“We know that Trump plans to increase the federal budget deficit and impose higher tariffs. Both of these policies are inherently inflationary, paving the way for ‘higher for longer’ Fed rates, naturally reducing the attractiveness of gold investment holdings—especially given that current gold ETF holdings are near a record high on a dollar basis. However, it is worth considering second-order effects of these policies,” the analysts said. “Chinese authorities are already reportedly considering weakening the RMB in 2025 to counteract the effects of further tariffs, which could re-energize retail gold demand in China, a key driver of gold price growth earlier this year. Another second-order effect would be if the U.S. exports inflation to regions with low growth, like the EU, which could cause stagflation and might accelerate the rate cut cycle. Ultimately, it will be the timing of these different effects that determines gold price swings in 2025.”
Looking beyond potential trade wars, BMO expects China to continue to be a dominant player in the gold market.
“We do not see global financial systems as being fully prepared for this, and hence gold is once more being pulled back into the monetary system,” the analysts said.
Along with gold, BMO analysts are also optimistic about silver; however, they note that there are more risks compared to the yellow metal.
BMO forecasts silver prices to average $29 an ounce next year, up 6% from its previous forecast. They noted that higher gold prices remain the biggest bullish factor for silver in the new year.
One surprising forecast from BMO is that the analysts believe higher cryptocurrency prices could impact silver more than gold next year.
“Given the rise of cryptocurrency and expected support from the incoming U.S. administration, we have naturally had a number of questions as to the potential impact on gold demand. However, gold is driven by macro trends and is viewed as a hedge against risk (while cryptocurrency is still a risk asset),” the analysts said in the report.
Although silver is expected to underperform gold next year, BMO said the precious metal remains well-supported in the long term as the green energy transition and the electrification of the global economy drive industrial demand higher.
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