Every Tuesday afternoon we publish a collection of topics and give our expert opinion about the Equity Markets.
As we navigate through the early months of 2025, the gold market continues to captivate investors and economists alike. The precious metal's performance in 2024 was nothing short of spectacular, with a remarkable 28% price rise in US dollars and even larger gains in other currencies. This stellar run has set the stage for what could be a pivotal year for gold, with many speculating whether 2025 will be the year gold finally breaks the elusive US$3,000/oz barrier. ABSI this week investigates the head and tailwinds for gold over the next 12 months.
As of January 20, 2025, gold is trading at over US$2,700/oz, up from $2,609.10 at the start of the year. This represents a solid start to the year, as the precious metal consolidates its price from momentum in 2024. In terms of other currencies, gold is at new all-time highs suggesting that the positive sentiment from 2024 is carrying over in 2025. So far in 2025, the gold price has made all-time highs in AUD, EUR, CHF, GBP, and CAD, to name a few.
Gold Price Against World Currency Basket
Source: Trading View
One of the most significant drivers of gold's recent performance has been the aggressive purchasing by central banks worldwide. This trend, which gained substantial momentum in 2024, shows no signs of slowing down in 2025. Countries like China, Russia, and Turkey have been at the forefront of this movement, strategically diversifying their foreign reserve holdings away from the USD due to geopolitical risks and fiscal uncertainty in the reserve currency.
Speaking of US fiscal uncertainty, the trajectory of US interest rates will play a crucial role in gold's performance in 2025. Last year the US Fed began an interest rate easing cycle, cutting interest rates by 1%. If this trend continues into 2025, it could provide significant tailwinds for gold. Inflation works both ways for the price of gold. Whilst continued ease of inflation will underwrite further interest rate cuts and boost the cost of carry for gold - consensus forecasts for US core inflation to be around 2.6% in 2025. However, if inflation surprises to the upside, it could also drive the gold price as a store of value.
One tailwind from 2024 which has the potential to mitigate in 2025 is the global political landscape which has been beneficial for gold of late. Last week a ceasefire was signed between Israel and Hamas, and there is mounting pressure from allies for Ukraine to go to the negotiating table for an end to the conflict with Russia. The easing of geopolitical tensions is a headwind for gold as a safe haven, however, any exacerbation of these tensions could rapidly accelerate gold's ascent towards US$3,000.
Which brings us to the biggest unknown of 2025 - President Trump.
Today, President Trump is sworn into office for a 2nd term which creates the biggest wildcard for the price of gold. It really is very difficult to forecast how the presidency will go but based on his proposed policies - pro-crypto, deep spending cuts to tackle the deficit and mounting US debt, and a desire to end current global conflicts - are bullish for the USD and therefore a headwind for gold. However, he also has tax cuts and tariffs on the agenda which are inflationary and therefore bullish for gold. My feeling is that spending cuts will be harder to implement than expected whilst tax cuts will be easy, given the control of congress, thus exacerbating the fiscal deficits and government debt which will see the continued decline of the USD as the global reserve currency.
Looking at the Wall Street estimates:
- Goldman Sachs - forecasted US$3,000 in gold in late 2024 but has adjusted its forecast to US$1,910 based on the US Fed making fewer rate cuts.
- UBS - forecasts gold to continue to rally in 2025 but stops short of the US$3,000 milestone and predicts US$2,900 by year-end.
- IG Markets - forecast the gold price above US$3,000 in 2025 based on Fibonacci technical analysis.
Technical Chart: Gold to USD
Source: Zero Hedge
From a technical perspective, the gold price remains in a strong long-term uptrend. Support levels can be identified around the September 2024 peak at US$2,685 and the early October 2024 low at US$2,605. As long as the price remains above the 2024 uptrend line at $2,550, the bullish momentum is likely to continue. The next significant resistance level above the minor psychological $2,800 mark is the much-anticipated $3,000 threshold. This level coincides with the 261.8% Fibonacci extension of the September 2022 to May 2023 advance, projected higher from the October 2023 low, at $2,999.46.
Given the confluence of factors supporting gold prices – continued central bank buying, geopolitical uncertainties, potential interest rate cuts, and inflation concerns – the possibility of gold reaching $3,000 in 2025 appears increasingly plausible. However, the path to this milestone is unlikely to be smooth. The US$3,000 level represents a significant psychological barrier, and it may take sustained momentum and a combination of bullish factors for gold to decisively break and hold above this level. Ultimately, while 2025 presents a favorable backdrop for gold to potentially reach US$3,000, it's important to remember that this is a price in terms of USD. Investors in ASX-listed gold mines will do better to focus on the gold-to-AUD price level, currently above A$4,300/oz, as this will indicate profitability for gold mines in Australia.
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