Gold achieved a 27% annual increase in 2024, reaching a historic high of nearly $2800 per ounce. This surge was fueled by three main factors: massive gold purchases by central banks, loose monetary policies, and global geopolitical turmoil. With potential policy changes and economic uncertainties during Trump's second term, the market's demand for gold as a safe haven continues to be bullish. Many Wall Street institutions predict gold prices will further rise in 2025.
The Three Catalysts of 2024
Gold, as a safe haven asset, has performed exceptionally well due to three key driving forces:
- Massive Central Bank Purchases
Central banks in China and other emerging markets have significantly increased their gold holdings to diversify dollar reserves and manage economic volatility risks. - Loose Monetary Policies
The Federal Reserve's monetary easing in a low-interest-rate environment has greatly increased the appeal of gold as a non-yielding asset, pushing gold prices higher. - Geopolitical Risks
Factors such as the Russia-Ukraine conflict and wars in the Middle East have exacerbated global market turmoil, making gold once again the top choice for investors seeking to hedge risks.
Outlook for Gold in 2025: Reaching $3000?
Looking ahead, most analysts believe these driving factors will continue into 2025, with policy uncertainties during Trump's new term providing further support to the gold market.
Optimistic Institutional Forecasts
Greg Sharenow, a portfolio manager at Pacific Investment Management Company (PIMCO), states that global central banks and high-net-worth households remain keenly interested in gold. He emphasizes, "Diversification is the key to gold's continued appeal." Quantix Commodities, a U.S. hedge fund, has currently increased its gold allocation to 30%, nearly double the gold weight in the Bloomberg Commodity Index, and predicts that gold prices will surpass the $3000 mark in 2025.
Wall Street bank sell-side strategists are also optimistic about gold. Bank of America and JPMorgan anticipate that gold prices will reach $3000 by the end of the year, while UBS sets a slightly lower target price of $2900.
Short-Term Fluctuations Do Not Hinder Long-Term Prospects
Although market sentiment after Trump's victory pushed up the dollar, U.S. stocks, and Bitcoin, causing a short-term retreat in gold, analysts believe this adjustment will not change gold's long-term upward trend. Darwei Kung, Head of Commodities at DWS Group, expects that new tariff policies potentially implemented by Trump will intensify trade tensions and push gold prices back to $2800 or even higher by the end of the year.
The Dual Pressure of Deficit and Trade Wars
Patrick Fruzzetti, a portfolio manager at New York investment advisory firm Rose Advisors, points out that compared to Trump's first term, the U.S. federal deficit and debt levels are significantly higher. According to the Congressional Budget Office, U.S. debt has grown from less than $17 trillion in 2019 to $28 trillion, with the federal deficit projected to exceed 6% of GDP by 2025.
This fiscal condition could undermine market confidence in U.S. Treasury bonds, further enhancing gold's appeal as a hedging tool. Aline Carnizelo of Frontier Commodities states that a potential trade war involving the U.S. is also likely to prompt global central banks to adopt more easing policies, thereby boosting gold price performance.
The Strengthening of Gold's Safe Haven Status
In summary, although gold prices may be influenced by short-term market sentiment fluctuations, uncertainties surrounding Trump's second term, potential inflationary pressures in the global economy, and the pace of easing by central banks all provide a solid foundation for gold's upward movement. The consensus on Wall Street is that gold will remain one of the most attractive assets in the market for the next two years.
