Policy and Demand Driving the Gold Market Outlook
The World Gold Council (WGC) recently released a report stating that uncertainty will dominate the gold market in 2025, particularly with the risk posed by the uncertain economic policies of the newly elected U.S. President, Trump. WGC specifically mentioned Trump's proposed trade tariff policy, which could exacerbate global economic tensions and have multiple impacts on the gold market.
Trump's plan to increase tariffs on domestic manufacturing is believed to potentially drive up global inflation, further influencing the Federal Reserve's monetary policy stance. Many economists point out that the increase in trade tariffs will exacerbate already high inflationary pressures, while market expectations for interest rate cuts in 2025 are gradually decreasing. Bank of America predicts only two rate cuts by the Federal Reserve next year, while Wells Fargo sees a higher chance of only one cut.
Federal Reserve and the Dollar: Key Driving Forces
Analysts believe that the actions of the Federal Reserve and the movements of the dollar remain core drivers of the gold market. However, the WGC emphasizes that gold's performance does not depend solely on these factors. Analysts said, "We rely on a stronger supply-demand framework that allows us to capture various market dynamics, including investor demand and market supply."
The Supporting Role of Asian Demand
On the demand side, Asian consumers have played an active role in pushing gold prices upward. The WGC states that in the first half of 2024, strong demand from Asian investors helped gold prices reach historic highs, while India's reduction in import tariffs in the second half further stimulated demand. However, the WGC also warns that amid escalating global trade tensions, consumer demand in Asian countries may be restrained by weak economic growth or policy uncertainty.
Analysts noted, "Although the factors affecting gold demand in 2024 will still exist in 2025, gold may face competitive pressure from other investment areas, particularly the stock and real estate markets."
Central Bank Gold Purchases Continue to Support Prices
Apart from consumer demand, central bank gold purchases remain a key factor supporting gold prices. The WGC anticipates that although the pace of gold purchasing may slow, central bank demand will exceed the long-term trend of 500 tons in 2025, providing positive support for gold prices. The WGC added, "Central bank gold purchases are policy-driven, making them difficult to predict accurately, but the current trend suggests that gold will continue to be an important part of central bank reserves globally."
The 2025 Outlook: A Mix of Challenges and Opportunities
The WGC believes the 2025 gold market could face two distinct scenarios. On one hand, the uncertain policy environment and trade tension risks may dampen market sentiment; on the other hand, positive factors such as Asian demand and central bank gold purchases will provide support for gold prices. Analysts suggest investors should focus on global economic and policy dynamics to better respond to potential volatility in the gold market.
Overall, the gold market in 2025 will seek balance amid uncertainty, with gold prices showing more possibilities in the tug-of-war between policy and demand.
