The World Gold Council (WGC) said in its “2025 Outlook” report released Thursday that the gold market will face two distinct scenarios next year as uncertainty dominates investor sentiment. However, its base case forecasts gold prices to be relatively neutral if current market conditions persist.
The uncertain outlook for gold comes as prices have climbed back above $2,700 an ounce, with the precious metal poised to end the year up nearly 30%, its biggest gain in decades.
Sentiment around gold has changed slightly since the same time last year. Investors were quite optimistic about gold’s prospects at the start of 2024, with the market pricing in aggressive interest rate cuts from the US Federal Reserve.
Despite the prolonged tightening stance, gold hit successive record highs throughout the year thanks to strong demand from central banks, while Asian consumer demand was a key pillar in the first half of the year.
By the summer, as Asian demand eased, Western investors entered the market, providing fresh impetus to record highs as the Fed began its long-awaited easing cycle.
Analysts at the WGC said their modelling suggests the gold market will become more complex as investors assess the health of the global economy.
“The market consensus is that macroeconomic variables such as GDP, yields and inflation, when viewed simply, suggest that gold will have positive but modest growth in 2025.
Gold prices could rise further if central bank demand exceeds expectations or if financial conditions deteriorate rapidly, spurring safe-haven flows. Conversely, if monetary policy reverses and interest rates rise, gold could face challenges, analysts said in the report.
The WGC also stressed that a major risk for gold is the uncertain economic policies of US President-elect Donald Trump, including proposed tariffs to support domestic manufacturing, which risk pushing the global economy into a trade war.
Many economists say higher trade tariffs could further increase inflation, which is already difficult to reduce, affecting the Fed's current monetary policy stance.
The market has already started to reduce expectations for rate cuts in 2025. Bank of America forecasts just two rate cuts next year, while Wells Fargo predicts just one.
“In this context, the actions of the Fed and the direction of the US dollar will continue to be important factors affecting gold prices. However, as the past few years have shown, these are not the only factors determining gold’s performance. We rely on a more comprehensive analytical framework to capture the contributions from all areas of gold supply and demand,” the analysts said.
On the positive side, the WGC noted that investors should continue to pay attention to Asian consumer interest, which has helped push prices to record highs as the Fed maintains tight monetary policy in the first half of 2024.
“Asian investors have contributed significantly to gold’s performance this year, especially in the first half, and demand from India has benefited from lower import duties in the second half.
However, the risks of trade wars remain. Consumer demand from China may depend on the health of economic growth - whether through normal measures or government stimulus. And while the factors that affect investment demand in 2024 remain, gold may face competition from stocks and real estate, analysts said.
Ultimately, the biggest support for gold remains central bank demand. The WGC predicts that central banks will continue to buy gold, although at a slower pace than in recent years.
“Central bank gold purchases are policy-driven and therefore difficult to forecast, but our surveys and analysis suggest that the current trend will continue. In our view, demand above 500 tonnes (the long-term average) will still have a positive impact on performance. And we believe that central bank demand will exceed this level in 2025,” the analysts said.
