Gold prices could fall victim to 2024 rally

Gold prices remained surprisingly stable in December 2024 despite a stronger US dollar and profit-taking by traders. Debt concerns, central bank buying and geopolitical risks are expected to continue to support investor interest in the precious metal in January 2025, according to the World Gold Council (WGC).

In its latest gold market commentary report, WGC analysts said gold prices fell less than expected due to a positive outlook and high risks limiting capital outflows.

“Gold slightly pared its year-to-date gains through December, down 1% for the month but still up 26% for the year,” the WGC said.

According to the WGC’s GRAM analysis model, the main reason for gold’s decline was a sharp rise in the US dollar index (opportunity cost relative to foreign exchange) – which ended the year at its highest level. However, this decline was mitigated by rising inflation expectations, rising geopolitical risk indicators, and small inflows from global gold ETFs.

Although December saw significant outflows from North American gold ETFs, global inflows were boosted by strong buying from Asian ETFs.

“Outflows were relatively mild given the weakness in November and the prospect of profit-taking after a very successful year,” the WGC said.

In December 2024, the US Federal Reserve (FED) decided to cut interest rates by 0.25 percentage points, combined with a tough message, caused strong fluctuations in the stock, bond and gold markets. The S&P 500 index fell 3%, the yield on the 10-year US government bond witnessed the largest volatility since 2013, and gold fell more than 2%.

The WGC expects bond market volatility to continue to drive demand for gold in January. However, it warned that technical signals suggest gold remains overbought.

The WGC also noted that uncertainty around interest rates, reflected in high levels of the MOVE index – a measure of potential volatility in the bond market – is creating favorable conditions for gold.

The WGC pointed out that the relationship between gold and real interest rates has broken down over the past two years, which it attributed to central bank purchases in emerging markets, geopolitical risks and bond market volatility.

“The data shows that when interest rate uncertainty, as measured by the MOVE index, is high, the impact of real yields on gold is significantly reduced,” the WGC said. When bond uncertainty increases, gold may be less negatively affected by yields.

While gold is supported by uncertainties, the WGC warned that the precious metal could fall victim to last year's success. Technical indicators suggest that gold is overbought and could face correction pressure in the short term.

However, the WGC believes that any short-term price correction could be an opportunity for investors to return to gold at more attractive prices. In the long term, the uptrend remains strongly reinforced, despite challenges in 2025.