(Kitco News) - Gold prices have continued to consolidate within a broad range as they struggle to break resistance above $2,700 an ounce. However, one bank remains optimistic about the precious metal, identifying four key factors expected to drive prices higher this year.
Among commodities, gold is one of the few that analysts at BMO Capital Markets are bullish on for 2025. They anticipate central banks will continue to purchase gold as they diversify away from the U.S. dollar. Furthermore, the Canadian bank expects gold to remain a dynamic asset, serving as an effective hedge against inflation, geopolitical uncertainty, and equity market risks.
Next week, Donald Trump will be sworn in as the next President of the United States. The global community is already bracing for the new administration, with Trump signaling plans to implement tariffs to promote and support America-first domestic policies.
BMO analysts stated that Trump’s administration will be “inherently” inflationary.
“The incoming administration has emphasized two clear policies which will be a focus of Trump’s second term. The first is that 2025 is gearing up to be the year of heightened tariffs… Since tariffs effectively constitute a domestic tax on consumption paid by the consumer, economic consensus is that tariffs are inherently stagflationary,” the analysts noted in their report. “The second policy indication is that higher government spending is here to stay. Trump won the election on a ticket of tax cuts on corporates and individuals alike, and his election pledges are expected to add an estimated $7.75 trillion to US debt between 2026 and 2035 according to analysis done by the Committee for a Responsible Federal Budget.”
BMO also highlighted that rising inflationary pressures are likely to push real interest rates lower, eroding the appeal of risk-free returns seen in short-term bonds last year.
Meanwhile, gold’s historically low correlation with other assets could be a significant selling point this year, with BMO noting that valuations are at record levels.
“AI investment has sent the S&P Index to its highest recorded P/E ratio since the dot-com years. If AI rollout hits an infrastructure-constrained rate limit in the coming years, this could cause not only a depreciation of the dollar but also a price-in of an even wider federal deficit – both of which we believe are hedged adequately by gold,” the analysts said.
BMO analysts are also cautioning investors not to underestimate Chinese demand. Asian demand propelled prices to record highs in the first half of the year, though the rally tempered demand in the second half.
Despite elevated prices, the analysts noted that Chinese consumers have limited options for wealth protection.
“Amidst continued RMB depreciation, a flat property market, and the fact that Chinese equities have failed to sustain their September rally, we believe that gold will look increasingly attractive to Chinese investors in 2025,” the analysts said.
“While all signs point to stronger gold investment demand in China in 2025, we would caveat that this will not sit well with Chinese policymakers, who continue to battle with the country's low household consumption and weak private sector growth,” the analysts added. “In the event that China does exhibit record gold demand, we should not be surprised to see further capital controls perhaps in the form of tighter import quotas, which could put a ceiling on demand growth in China in 2025.”
BMO’s bullish outlook forecasts gold prices averaging around $2,750 an ounce in 2025, a 3% increase from its previous estimate. On a quarterly basis, the analysts expect prices to peak during the summer, averaging $2,850 an ounce in the third quarter.
