Gold futures surged significantly on the opening day of 2025, reaching a two-week high with the February contract climbing $32.10 (1.22%) to settle at $2,671.20. This follows Tuesday's gain of $19.30, resulting in a combined increase of over $50 from Monday, December 30's low of $2,608.
The recent gains appear largely driven by market uncertainty surrounding the incoming Trump administration's changes to U.S. economic policies and the anticipated reintroduction of additional tariffs.
According to Trading Economics, “The rally has been fueled by U.S. monetary easing, record central bank purchases, and persistent geopolitical tensions, including Wednesday's Russian drone strikes on Kyiv and Israeli military actions in Gaza.”
Gold demonstrated remarkable strength in the previous year, posting approximately 27% gains—its strongest annual performance since 2010. The fundamental factors that drove this impressive rally remain firmly entrenched in current market sentiment, suggesting potential for continued upward momentum. The World Gold Council suggests that sustained buying activity from central banks globally continues to support current gold prices and could maintain upward pressure on valuations.
Multiple factors support the bullish outlook for gold in 2025. Persistent geopolitical tensions in Ukraine and the Middle East, combined with continued central bank accumulation of gold reserves, create a strong foundation for price support. Additionally, uncertainties surrounding President-elect Trump's proposed economic policy changes and tariff adjustments could provide further bullish momentum, potentially pushing gold to new all-time highs.
However, recent statements from Federal Reserve officials, including Chairman Jerome Powell, introduce a note of caution. Powell has highlighted renewed inflation risks, which could diminish gold's appeal as a non-yielding asset. The latest Summary of Economic Projections (SEP) "dot plot" revealed a significant revision in anticipated interest rate cuts for the year, reducing expectations from four 25-basis-point cuts to just two, totaling a half-percent reduction in the Fed's benchmark funds rates.
The CME's FedWatch tool currently indicates an 88.8% probability that the Federal Reserve will maintain current interest rates between 4¼% and 4½% at January's FOMC meeting. For March, there's a 47.9% probability of continued rate pause, while May's outlook shows only a 38.5% probability of maintaining current rates. The tool suggests a 47.1% likelihood that by May 2025, the Federal Reserve will have lowered rates to between 4% and 4¼%.
That being said, this week’s performance in gold is stellar considering that the dollar index has gained over 1 % this week, opening at 107.707 on Monday and is currently fixed at 109.044.
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