2025 Gold Fundamental Outlook Preview

This is an excerpt from our full 2025 Gold Outlook report, one of nine detailed reports about what to expect in the coming year.

Gold looked to end 2024 with its second consecutive monthly loss, casting a small shadow over an otherwise strong year. Despite the late-year weakness, the precious metal was managing a stellar 26% year-to-date (YTD) gain as of 19^th December, when this report was written. Its performance outpaced key stock market benchmarks like the DAX (+19% YTD) and kept pace with the Nasdaq 100 (+26%), though Bitcoin’s extraordinary surge (130%) stole the spotlight. As we move into 2025, the gold outlook remains modestly positive, with a potential rally to $3,000 still on the horizon. However, near-term headwinds could weigh on its performance in the early months.

Strong dollar and yields: Potential obstacles for gold

One of the key drivers of gold’s rally in 2024 was the expectation that global central banks would ease monetary policy as inflationary pressures receded. While rate cuts materialised, their impact on gold was moderated by lingering inflation concerns. In December, the Federal Reserve enacted an expected rate cut but caused a bit of volatility as it signalled caution for the year ahead due to persistent inflation risks, driven partly by expected US policy shifts, including tax cuts and tariffs under the Trump’s presidency. Similarly, the European Central Bank and Bank of England adopted a cautious approach, citing strong wage growth and inflationary stickiness. As a result, monetary policy is likely to remain tight in early 2025, potentially supporting bond yields and the US dollar—two factors that often work against gold’s appeal.

Elevated bond yields are particularly significant as they increase the opportunity cost of holding non-yielding assets like gold. Concurrently, the US dollar’s resilience, bolstered by hawkish central bank policies and surprisingly strong economic data, has made gold relatively more expensive for buyers using weaker currencies. These dynamics could limit gold’s upside potential in the year’s first half.

Demand concerns in key markets: China and India

Gold’s two largest consumer markets, China and India, are facing challenges that could dampen demand. In China, a depreciating yuan and a sluggish post-pandemic recovery have made gold less affordable. The yuan’s recent slide to its lowest levels since the COVID-19 pandemic has effectively weighed on demand from an important region, particularly ahead of the Chinese Spring Festival, a period traditionally associated with robust gold purchases. With jewellery accounting for 65% of China’s gold consumption, the combination of weaker consumer purchasing power and economic uncertainty could constrain demand in early 2025.

India, the second-largest gold consumer, is experiencing similar pressures. A recent currency devaluation has eroded their purchasing power, making buck-denominated gold more expensive domestically. This is particularly concerning as India accounts for over 25% of global jewellery demand. The impact of higher gold prices is likely to manifest in reduced consumer spending on the shiny metal, especially among middle-income households, which form a significant portion of the market.

Beyond currency-related challenges, geopolitical risks also loom large. Potential US tariffs on Chinese goods could exacerbate economic pressures, while increased haven demand stemming from global uncertainties may only partially offset these headwinds.

Can gold decouple from risk assets?

Investor sentiment in 2024 leaned heavily toward riskier assets, initially fuelled by rate-cut hopes and then optimism following Trump’s re-election. Bitcoin, XRP, and other cryptocurrencies enjoyed meteoric rises, while equity indices like the S&P 500 and German DAX reached all-time highs. This shift in risk appetite reduced the allure of safe-haven assets like gold towards the end of the year, which typically thrive during periods of economic uncertainty – although in more recent years both gold and the S&P 500 have been going in the same general direction. Therein lies the problem with gold: can it decouple from risk assets?

Regardless of the stock market direction, gold’s long-term appeal remains intact. Inflation continues to erode the purchasing power of fiat currencies, reinforcing gold’s status as a store of value. Moreover, geopolitical tensions—from the Middle East to potential trade wars—could rekindle haven demand, providing a counterbalance to last year’s risk-on sentiment.

Can gold rally to $3,000 in 2025?

Despite short-term challenges, a $3,000 gold price target remains feasible. Corrections or consolidations in the early part of the year could set the stage for a renewed rally. Thanks to gold’s strong performance in 2024, any significant price declines could attract bargain hunters and long-term investors, who either took profit or missed out on the big rally. These factors should help to stabilise the market and pave the way for future gains.

Geopolitical risks and macroeconomic shifts are likely to play pivotal roles in shaping gold’s trajectory. For instance, the unwinding of the “Trump trade”—a phenomenon characterized by a strong US dollar and robust equity markets—could weaken the dollar and bolster gold prices. Additionally, central banks, which slowed their gold purchases as prices peaked in 2024, may resume buying if prices correct meaningfully in 2025.

This is an excerpt from our full 2025 Gold Outlook report, one of nine detailed reports about what to expect in the coming year.