Gold is on track for its best annual performance in more than a decade after seeing 28 per cent gains through November, or 34 per cent in Australian dollars, according to the World Gold Council.
The yellow metal is now trading 22 per cent higher on average this year than during 2023, and has reached 40 new record highs this year-to-date (YTD).
Interestingly, global gold ETFs saw their first monthly outflow since April, led by Europe, while North America was the only region reporting inflows.
Namely, total AUM fell 4 per cent over the period, although YTD flows have remained positive at US$2.6 billion. The 29-tonne fall in holdings last month dipped YTD demand into the red.
Nonetheless, the World Gold Council said that central bank and investor buying have more than offset a “notable deceleration” in consumer demand.
Asian investors have remained active, while lower yields and a weakening US dollar in Q3 fuelled Western investment flows.
“For most of the third quarter, Western investors flocked back to gold as central banks started cutting interest rates,” the council explained.
“Against this backdrop, gold remains one of the best performing assets of the year.”
However, the success of the yellow metal in 2025 hinges evolving fiscal and economic policies that may result in shifting global dynamics.
“Gold is having a record-breaking year due to a confluence of factors, driving the gold price and demand to record levels,” World Gold Council global head of research, Juan Carlos Artigas, highlighted.
“And while the current consensus on global economic performance suggests that gold could move sideways, the uncertainty surrounding the geopolitical landscape could provide a springboard for gold next year.”
Looking ahead, the council suggests that attention will be on what President-elect Donald Trump’s second term may mean for the global economy.
One potential scenario is a rise in risk-on appetite as strategic and tactical drivers unfold, leading to greater clarity and direction for gold later in the year.
“This could really ring true if there is a significant drop in interest rates or a marked increase in market volatility to further fuel investor interest. We also expect global central bank demand and Asian markets to continue playing a pivotal role,” Artigas continued.
While acknowledging that other factors influence gold’s performance, the council noted that the actions of the Fed and the direction of the US dollar will remain key areas to watch.
Its analysis suggests that if the economy performs according to consensus in 2025 - such as the Fed delivering 100 basis points in cuts by year-end, with inflation softening but still above target - gold may continue trading within the same range as the latter part of 2024, with potential for some upside.
“Conversely, a reversal in monetary policy, leading to higher interest rates, will likely bring challenges,” the association conceded.
“In addition, China’s contribution to the gold market will be key: consumers have been on the sidelines while investors have provided support. But these dynamics hang on the direct (and indirect) effects of trade, stimulus and perceptions of risk.”
Ultimately, the World Gold Council forecasts that gold is likely to remain rangebound if existing market expectations are correct, but warned that a combination of higher rates and lower economic growth could negatively affect investors and consumers.
“This could be particularly evident in Asia. Conversely, significantly lower interest rates, or a deterioration in geopolitics or financial market conditions will improve gold’s performance.”
“Gold’s final price performance will depend on the interaction of gold’s four key drivers: economic expansion; risk; opportunity cost; and momentum,” it concluded.
