While pessimistic sentiment, with numerous negative newspaper articles, influenced gold’s price in 2023, the late-year onset of buying by various central banks meant that the aim for 2024 was to surpass resistance at $2,075, ushering in a new era of excess demand supporting gold prices. The year ahead may not be a one-way street, but could more like a round trip that respects the uptrend in 2024.
Gold ETFs see more inflows
Gold-backed exchange-traded funds (ETFs) and similar products play a major role in the gold market, with institutional and retail investors using them in investment strategies. Money flowing into these funds often reflects short- and long-term sentiments towards gold, and these ETFs have seen consistent inflows since mid-2024, particularly from North America and Asia.
Year-on-year, global gold ETF holdings rose by 18 tons – the first positive figure – and total assets under management increased by 33%, fuelled by soaring gold prices. This could attract more retail investors in 2025, potentially signalling a new group of buyers – or an overheated market.
Emerging markets diversify their assets
Gold prices have surged to new highs this year, driven by more than just technical factors. Central banks in industrialised countries generally have a relatively high proportion of gold in their reserves. For example, the US, France, Germany and Italy hold about 70% of their reserves in gold. In contrast, emerging markets have traditionally had significantly lower proportions; for example, China reports holding 5% of its reserves in the metal.
However, central banks in emerging markets, such as Russia, China and other non-western states, are catching up with their industrialised counterparts, ramping up gold purchases – perhaps to shield against potential financial sanctions. According to Goldman Sachs Research, gold purchases by emerging market central banks have increased significantly since the freeze on Russian central bank assets in 2022, following Russia's invasion of Ukraine.
Policymakers also appear concerned about the $35tn US debt, equivalent to 124% of GDP. With many central banks holding significant reserves in US Treasury bonds, and increasing concerns among Wall Street players about their exposure to US fiscal risks, investors are shifting their dollar holdings into more neutral assets like gold.
What is the forecast for gold's price in 2025?
In 2024, gold broke above long-term resistance at $2,075 an ounce and reached an all-time high of around $2,800, with minimal corrections during the rally. After the US election, there was a correction of around 10% to around $2,530.
Looking ahead, the base scenario suggests a potential continued rise from the low of $2,530 towards $3,110 by the second or third quarter of 2025. While reaching $3,110 may slow the yellow metal’s upward momentum, it could climb higher still, towards $3,515.
After reaching this upper target, the yellow metal could potentially make a corrective move, back down towards $2,600. Whether this correction happens next year remains uncertain, but reaching $3,515 could make this more likely.
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