Gold was one of the best-performing commodities in 2024. The trend looks set to continue as demand for the precious metal remains high amid soaring geopolitical tensions worldwide. The yellow metal rose to two-week highs on the first day of trading in the New Year in the aftermath of terrorist attacks in the US.
Gold Rally on Geopolitics
Spot gold hit highs of $2,654 in the aftermath of the New Year’s attack in New Orleans. Fourteen people were killed and dozens injured when a man ploughed through a crowd on Bourbon Street. The attack was later followed by another incident involving a Tesla Cybertruck exploding in one of Donald Trump’s hotels.
The series of attacks unsettled the market, adding to a wave of uncertainty. The US attack came a day after Russia launched a series of drone attacks in Kyiv, striking two districts. Similarly, the Israeli military continues with its invasion of Gaza City. Geopolitical forces should remain key drivers of gold prices at the start of the year.
The rally in gold prices also comes at the backdrop of the US dollar strengthening across the board. In most cases, gold prices tend to drop whenever the dollar strengthens. However, that has not been the case over the past month as both asset classes double as safe havens, eliciting strong demand in times of uncertainty.
Interest Rate Cut and Central Bank Purchases
Similarly, the focus is on whether the US Federal Reserve will come through with another interest rate cut in a few days. Bullion thrives in a low interest rate environment as the focus shifts from yielding assets. Gold was on a roll, rallying by about 27% in 2204 in response to the central bank interest rate cut and geopolitical tension.
In addition to interest rate talks and geopolitical tension, the uncertainty over the upcoming Donald Trump administration could emerge as a new catalyst for bullion. Trump has already threatened to impose stringent tariffs on China and Canada, which continues to unsettle the market, consequently fuelling demand for the safe haven.
Global central bank purchases were a major factor in the 2024 increase in the price of gold. In 2025, this is anticipated to continue. According to a World Gold Council survey conducted in the second half of 2024, central banks will probably buy more gold over the following year. Demand for the precious metal should increase as a result.
Gold Price Outlook 2025
In addition to central banks, professional investors in North America have increased their gold holdings and profited from rising prices. In a separate World Gold Council report released in late June, a survey of 525 of these investors revealed that 85% reported allocating funds to some kind of gold investment in 2023, up from 69% in 2018 to 76% in 2019.
For the past two years, the price of spot gold has been in a robust bull market, rising by almost 70% from its low in September 2022 to this week’s record high of $2,790.00 per troy ounce. The price of gold will continue to rise in the long run as long as the 2024 uptrend line at $2,550.00 is supported, even if there is a notable retracement lower. Amid interest rate cuts, soaring central bank purchases and geopolitical tensions, gold is expected to rise past the $3,000 psychological level in 2025.
