Near a pile of gold bullion.
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The US Federal Reserve unexpectedly shook the markets A set of stringent expectations For the path of interest rates next year, sending gold prices higher – but analysts told CNBC they still see strong support for the precious metal in 2025.
The Fed's “plot point,” a measure of policymakers' expectations, suggests the Fed will cut interest rates twice in 2025, compared to four quarter-point cuts previously expected in September, when concerns about a weak market… Work in the foreground. mind. The biggest worry for the central bank now is whether the policies of incoming President-elect Donald Trump – especially his threat to impose sweeping trade tariffs – will prove inflationary.
the US dollar Interest rates jumped following the Fed news on Wednesday, with the dollar index hitting a two-year high, as the potential for a rate hike was seen strengthening the currency. Meanwhile, gold prices – which have been on a dizzying rise and reaching record levels this year – fell 2% to their lowest level in a month.
Gold is widely traded in dollars, as a stronger dollar affects the prices of the precious metal. High interest rates and higher US Treasury yields also traditionally lead to increased competition for safe haven assets, weakening demand for gold.
Gold futures.
But these relationships have been “off and on” over the past few years, as broader factors such as demand for gold from central banks — especially China — outpace moves in the dollar and the U.S. Treasury, according to Hamad Hussein, a commodities economist at Capital. Economy.
“Trump’s tariff proposals and a tighter Fed increase the downside risks for gold,” he told CNBC by phone. “All else being equal, this will lead to lower gold prices. But we expect unconventional factors to be stronger next year.” . .
China plays the largest role in this, from Hussein's point of view. The central bank of the world's second-largest economy has resumed buying gold, while a weak macroeconomic outlook – especially in light of a potentially escalating US trade war – is driving safe-haven demand among domestic investors. He added that in general, since the outbreak of the Russo-Ukrainian war in 2022, central banks from Poland to India have increasingly preferred to buy gold.
“As a result, gold prices are likely to remain close to their record highs over the next year,” Hussein said.
Crypto competition
Janet Moy, head of market analysis at RBC Brewin Dolphin, said gold prices would continue to find support next year.
“On the sidelines, a more hawkish Fed, a stronger US dollar, and higher real yields are all negatives for gold in the near term. This is especially true following the strong rise in gold prices this year and the increasing appeal of cryptocurrencies as a digital store of value,” Moy said. Via email.
“However, we believe that some structural and cyclical support for gold will remain appropriate,” Moy continued.
“This includes the desire of emerging market central banks to accumulate gold as a percentage of reserves and a place in the portfolio to hedge against various macro risks. We continue to be overweight in gold as a source of diversification against our riskier assets,” she added.
Debate has raged for years about whether Cryptocurrencies like Bitcoin can replace gold As a leading “store of value” asset, skeptics argue that cryptocurrency assets lack the stability of the metal.
Both have theoretical appeal as a refuge from geopolitical fluctuations and broader market volatility, although this has not always been consistent with cryptocurrency prices.
Geopolitical tensions through 2025, coupled with the diversification of foreign reserves by central banks and the fact that interest rates are likely to continue to fall, create a “perfect storm for gold,” said Ewa Manthey, commodity strategist at ING.
“Despite the pullback we saw in gold prices following yesterday's Fed statement, we believe gold's positive momentum will continue in the short to medium term,” Manthey said via email.
ING expects gold prices to average $2,760 per ounce in 2025, from $2,595 today.
However, Manthey stressed that its upside was in the short to medium term.
“In the longer term, the policies Trump proposes – including tariffs and tougher immigration controls, which are inherently inflationary – will limit interest rate cuts by the Federal Reserve. A stronger US dollar and tighter monetary policy may ultimately save Some headwinds for gold.” She said.
