After breaking through the $2800 mark in November, the international gold prices have recently experienced adjustments. However, with the latest inflation data bolstering expectations of a Federal Reserve rate cut, gold futures prices have gained strength again. On December 11, COMEX gold futures for February delivery rose nearly 1.5% during trading on the New York Mercantile Exchange, closing back at the $2750 mark. In their latest report, Goldman Sachs predicted that gold prices would reach $3000 by the end of 2025, despite the dollar possibly staying strong, as the Federal Reserve's rate cut is expected to inject strong momentum into the gold market.
Federal Reserve Policy Closely Tied to Gold Performance
The U.S. Consumer Price Index (CPI) for November met expectations, further reinforcing market expectations of a Federal Reserve rate cut next week. So far this year, international gold prices have increased by nearly 25%, with the Federal Reserve's policy shift and geopolitical risks being major driving forces. Goldman Sachs predicts that if the Federal Reserve cumulatively cuts rates by 125 basis points by the end of 2025, gold prices could rise by 7%, breaking the $3000 barrier. Although the dollar may remain strong in the short term, the potential for a gold rebound remains substantial.
Daan Struyven, a commodities analyst at Goldman Sachs, pointed out that tariffs and trade tensions during Trump's second term could make gold an important safe-haven asset. Recently, the premium between New York gold futures and spot gold has continued to widen, indicating increasing market concerns about potential tariff impacts. John Reade, a strategist at the World Gold Council, noted that if precious metals are subject to a 10% tariff, the potential loss per ounce of gold could be as high as $300, prompting the market to actively adjust positions.
Central Bank Demand and ETF Inflows as Important Supports
In addition to Federal Reserve rate cut expectations, global central bank and ETF demand have also provided continuous support for gold. According to data from China's central bank, gold reserves increased by 160,000 ounces at the end of November 2024 compared to the previous month, marking the first increase in six months. Furthermore, according to data from the World Gold Council, global gold demand in the third quarter increased by 5% year-on-year, reaching 1313 tons, with a net ETF inflow of 95 tons, marking the first increase since early 2022.
Max Layton, head of global commodity research at Citi, believes that in the next 6-12 months, gold prices are likely to challenge $3000. This is mainly due to increased economic uncertainty in the U.S. and Europe, enhancing the attractiveness of gold as a wealth preservation tool. Macquarie expects that although a strong dollar may exert short-term pressure on gold prices in early 2025, as U.S. fiscal problems worsen, gold will rise further.
U.S. Debt Issues and Dollar Depreciation as Long-term Drivers
Recently, the total U.S. debt surpassed $36 trillion, raising market concerns about fiscal prospects. Michael Armbruster, co-founder of Altavest, indicated that uncontrolled federal spending will eventually force the dollar to depreciate, and gold’s long-term appeal as a safe-haven asset remains strong.
In summary, geopolitical risks, Federal Reserve rate cuts, central bank purchases, and ETF inflows are jointly propelling the development of the gold market. Although there may be short-term pressure from a strong dollar, in the medium to long term, the gold price target of $3000 seems increasingly within reach. Analysts suggest investors closely monitor Federal Reserve policy and global economic trends to seize market opportunities.
