Gold seems to be gaining momentum after a volatile week in which prices fell by 4,6%.
Although prices rose by more than 30 percent this year, Commerzbank AG experts believe there will only be a small upside for 2025.
In 2024, gold prices will be supported by positive sentiments due to a number of factors. These include increased geopolitical tensions as well as lower interest rates.
Over the past few months, gold prices on COMEX had reached record levels.
For the first ever time, in October the price of the contract exceeded $2,800 an ounce.
The subsequent surge in the dollar against a basket major currencies has stopped the price rally.
Goldman Sachs, however, remained optimistic about the prospects of yellow metal, despite Commerzbank’s statement that they expect only a small upside from current prices.
Investors will be kept on their toes by the divergent opinions on the gold markets in the months to come.
Gold to follow Fed policies
The US Federal Reserve will be a major factor in driving gold prices higher over the next few months and into 2025.
In September, the US central bank began its cycle of rate cuts with an unprecedented 50 basis point cut.
It was also the first rate cut by the bank in over four-and-ahalf years.
Gold benefited from the optimism about lower interest rates, but the Fed’s November meeting was slowed down by sticky inflation as well as a robust labour market.
It is unlikely that the bank will cut its rates further at their December meeting.
Commerzbank AG estimates that by mid-2025 the Fed’s interest rate will be 4%.
This is consistent with the forecast of our economists. Carsten Fritsch said, “We confirm our forecast price of USD 2,600 per tonne in the first half 2025.”
German banks expect gold to be priced at $2.650 an ounce by the end of 2025.
Bank officials said that the forecast has been revised up from its previous $2,600.
Fritsch added:
The Fed will not tighten monetary policy if US inflation rises due to Trump’s expected tariff policies.
Trump’s policy to increase US inflation
Gold prices fell from recent highs after Donald Trump won the 2024 US Presidential election.
Trump’s likely increase in tariffs for all imports to the US will likely lead to higher inflation.
The Fed may be prompted to reduce its rate cut cycle if the US prices increase.
Gold is not a yielding asset, so higher rates are against it.
Bonds would attract more investors if rates were higher.
Some analysts think that a persistently high inflation rate could eventually lead to a higher demand for gold. Gold is used by investors to protect themselves against inflation.
Trump could also pressure the Fed into easing monetary policies to help support Trump’s expansionary plans to boost the US economy.
Goldman Sachs says that the “America-First’ policies proposed by President-elect Trump could support gold prices up to 2025.
Goldman Sachs’ ambitious project
Goldman Sachs predicted earlier in the week that the price of gold would reach $3,000 an ounce at the end 2025.
Kitco.com reported that while Donald Trump’s victory in the election and the Republican Party’s sweep of Congress caused some profit-taking and selling, other factors have continued to drive gold prices to new highs.
In a recent note, the investment bank stated:
A structural factor driving the forecast would be higher central bank demand, while the Federal Reserve’s cuts in interest rates could provide a boost to the exchange-traded fund market.
Kitco.com reported that, although central banks have reduced their gold purchases in the third quarter 2024, the demand for the metal is expected to continue to be high in future as nations diversify away from dollars in their official reserve, Kitco.com stated in its report.
Goldman Sachs also noted that the Fed’s increased holdings are likely to be prompted by the US Government’s increasing debt.
Goldman Sachs stated that “a unprecedented increase in trade tensions may revive speculation on gold.”
Rising geopolitical crisis
The yellow metal’s demand as a safe haven is expected to continue to attract traders in 2019.
Risk-on sentiment will likely decline as tensions between Russia and Ukraine and the Middle East escalate, opening the door for commodities like gold and silver.
Commerzbank’s Fritsch said:
The numerous geopolitical crisis, central bank purchases of gold and the possibility of higher US budget deficits and those of other Western nations are all arguments for a rise in gold prices.
Recent reports claim that Washington has allowed Ukraine to use US made weapons against Moscow in its ongoing war.
Vladimir Putin, the Russian president, has said that as a consequence of this decline in thresholds for nuclear weapon use has been significant.
Gold will benefit in 2025 from the prospect of a further increase.
If this scenario is true, then gold may be set to break more records in the coming year.
The post Gold: Will it soar or fall? As updates are made, forecasts that conflict may change.
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