Gold gets down to work after the holiday break

(Kitco News) - Although gold ended 2024 with a 26% gain, December wrapped up on a disappointing note, as the precious metal didn’t see a Santa Claus rally for the first time in seven years.

However, a new year brings fresh opportunities as gold not only tests critical resistance levels near $2,700 but also defies significant headwinds from rising bond yields and surging bullish momentum in the U.S. dollar.

Gold’s break from its traditional relationship with the U.S. dollar and bond yields is a key theme highlighted in Kitco News’s 2025 outlook series. Many analysts note that investors are paying less attention to the higher opportunity costs of holding gold as they seek to hedge against growing inflation risks, economic uncertainty, and geopolitical turmoil.

At the same time, gold continues to solidify its role as an essential monetary asset in global financial markets. We’re already seeing this trend play out, with the precious metal hitting all-time highs against the British pound and the euro this week.

Many analysts are bullish on gold and silver this year; however, they also warn of potential volatility as gold remains caught in an ongoing tug-of-war between U.S. interest rates and its safe-haven appeal. Despite this, many expect gold’s defensive qualities to overshadow the Federal Reserve’s hawkishly neutral stance.

Looking at the Federal Reserve’s monetary policy, in its final meeting of 2024, the U.S. central bank signaled it expects to cut interest rates only twice in 2025. Back in September, the committee had anticipated four rate cuts.

This past week, markets learned that the conversation was slightly more hawkish than the updated economic projections suggested. According to the minutes from the December monetary policy meeting, some central bankers see interest rates nearing a neutral level.

Investors are now wondering if equity markets can sustain their rally if interest rates remain elevated. At the same time, will the economy stay robust with high borrowing costs? So far, Western investors are largely ignoring gold, leaving international investors and central bankers to dominate the marketplace.

Specifically, commodity analysts expect Chinese consumers to continue investing in gold to protect their wealth from a weakening yuan and volatility in equity markets. We already know that, after a six-month pause, China’s central bank has resumed buying gold.

Reserve data from the People’s Bank of China shows it purchased 10 tonnes of gold in December, following an increase of five tonnes in November.

Analysts also anticipate that central banks in emerging markets will keep buying gold and diversifying away from the U.S. dollar to shield themselves from geopolitical uncertainty. President-elect Donald Trump continues to weaponize the U.S. economy, threatening tariffs on both allies and adversaries.

Looking beyond the potential volatility, many analysts expect gold prices to push to $3,000 an ounce. However, even with the strong start to the year, prices aren’t expected to rally in earnest until the second half.

So, let’s put away the eggnog and buckle up — it’s time to get to work!

Have a great weekend!