JOHANNESBURG (miningweekly.com) – The gold price has increased by more than 28% year-to-date in dollars, trading 22% higher on average this year than during 2023, the World Gold Council reported on Thursday, December 12.

Gold’s performance across currencies was equally strong and reached 40 new record highs and total third-quarter gold demand surpassed $100-billion for the first time.

Investment demand, especially through over-the-counter transactions, was supported by an undercurrent of geopolitical risk and volatility in many regional financial markets.

Central banks, the council stated in 'Gold Outlook 2025', have continued to add gold to reserves and even picked up speed in early October and for most of the third quarter, Western investors flocked back to gold as central banks started cutting interest rates.

A nigh 7% US stock market rise since early November points to American investors banking on a pro-business agenda in an America-first environment, which will likely favour risk-on trades in the first few months of the year, the World Gold Council report stated.

The question, however, is whether these policies will also result in inflationary pressures and disruptions to supply chains.

In addition, concerns about European sovereign debt are once again mounting, not to mention continued geopolitical instability, particularly considering the events in South Korea and Syria in early December.

In all, this could prompt investors to look for hedges, such as gold, to counter risk.

FEDERAL RESERVE

Monetary policy is limited in scope and its effects take time to become evident, complicating the decisions made by central bankers about whether to continue, pause or reverse the course of a given policy.

The Federal Reserve, which is aiming to engineer a hard-to-come-by soft landing, has so far managed to cool inflation without taking the wind out of the sails of the economy. But 2025 will likely not prove easy.

ASIAN DEMAND

China and India are gold’s largest markets. More generally, Asia makes up more than 60% of annual demand, excluding central banks. Its contributions to performance can not be understated.

This year, Asian investors added to gold’s performance, particularly during the first half, and Indian demand benefitted from the reduction in import duty in the second half.

However, the risk of trade wars looms large. Chinese consumer demand will likely depend on the health of economic growth – whether through normal means or government stimuli. While the same factors that influenced investment demand in 2024 are still present, gold may face competition from stocks and real estate.

While central bank demand will likely end the year below previous records, it has remained strong, positively contributing to gold’s performance to the tune of 7% to 10%.

Equally, central banks will remain an important part of the puzzle. Central bank buying is policy-driven and thus difficult to forecast, but our surveys and analysis suggest that the current trend will remain in place.

In its view, demand in excess of 500 t (the approximate long-term trend) should still have a net positive effect on performance. It believes central bank demand in 2025 will surpass that, but a deceleration below that level could bring additional pressures to gold.

LIKELY TO REMAIN RANGEBOUND

Gold is likely to remain rangebound if existing market expectations are correct.

However, a combination of higher rates and lower economic growth could negatively affect investors and consumers.

This could be particularly evident in Asia. Conversely, significantly lower interest rates, or a deterioration in geopolitics or financial market conditions will improve gold’s performance.

A key checkpoint will be central bank demand as it will continue to provide a boost to gold if it remains at a healthy level.

Gold’s final price performance will depend on the interaction of gold’s four key drivers, namely, economic expansion, risk, opportunity cost, and momentum.