Gold enjoyed a string of successes in 2024, having seen 41 new closing highs by the end of October, and peaking at a record US$2,778 ($4,472) per ounce that same month.
While the yellow metal took a back seat in November, with the US election results seeing investors scramble into risk assets, coupled with a strong US dollar, State Street Global Advisors (SSGA) is confident that the commodity has “room to run” in 2025.
“Our base case is for gold to range between US$2,600 and US$2,900 in 2025, with the potential to rise to US$3,100 under certain economic scenarios,” the financial giant said.
According to SSGA, there are a few key reasons to be bullish on gold.
First, strong central bank purchases of gold are expected to persist, helping to offset any negative impact a strong dollar might have on price. While central banks have consistently been net buyers of gold for the past 15 years, the pace of their purchases are moving into top gear.
“Monetary easing and the potential for the new Trump administration’s fiscal policies to raise deficits and stoke inflation should lower the opportunity cost of buying gold versus the US dollar or Treasurys,” the company said.
Equity markets have also had a strong 2024, and despite the risk-on tone from investors being bolstered by President-elect Donald Trump’s pro-business polices, SSGA countered that anxieties around the tail risks of inflation, rising government debt and worsening geopolitical tensions are not in short supply.
“We don’t see this changing and expect the secular demand trends underpinning gold’s price and its status as a safe haven to continue enhancing gold’s appeal as a core portfolio asset, even if capital markets strike a risk-on tone in 2025.”
Lastly, State Street highlighted, is burgeoning consumer activity – and those leading the charge driving demand on a consumer level are quite close to home.
“Another long-term driver of gold demand comes from the Asia-Pacific region, where tremendous economic growth over the past three decades has improved per capita incomes and spurred investment,” SSGA said.
“Between 1990 and 2023, APAC’s GDP per capita has more than doubled and its contribution to world GDP growth increased from about a quarter to over two-thirds.”
According to the asset manager, India and China are leading the way, but the entire region is also benefiting as local gold managed funds and exchange-traded funds (ETF) proliferate and regulations encourage gold ownership.
In fact, since 2005, gold funds in the APAC region have increased from three to 128 in number, attracting more than US$23 billion.
Under what conditions does the yellow metal surpass US$3,100?
Despite State Street’s confidence that gold has more room to run this year, it notes that the yellow metal’s price could vary according to how the Trump administration’s policies evolve.
SSGA’s base case, of which it sees a 50 per cent probability, has the commodity trading between US$2,600 and US$2,900 per ounce.
“Under this scenario, US growth continues to surprise to the upside, causing inflation metrics to remain higher than expected, and the Fed funds rate to stay higher than the projected 3.25 per cent to 3.5 per cent from September 2024.”
SSGA’s base case also sees gold-backed ETF flows fluctuate throughout the year, with consumer demand for gold in Asia remaining steady and central bank buying creating a “soft floor” on the commodity’s price.
The company’s bull case, which they have pencilled in at around a 30 per cent probability, has gold trading as high as US$3,100 per ounce.
“This occurs if US growth slows down enough to create weakness in the labour market, enabling the Fed to cut rates to 3.25 per cent to 3.5 per cent by the end of 2025,” it said.
This scenario would also need to see mostly positive gold ETF inflows year-round, central banks continuing with their gold-purchasing surge and consumer demand in Asia strengthening as lower rates weaken the US dollar.
On the other side of the coin, if US growth accelerates far more than expected, gold could backtrack to trade between US$2,200 and US$2,600, according to State Street.
“Sturdy growth puts pressure on inflation, causing the Fed to pause on rate cuts and higher interest rates strengthen the US dollar as foreign flows into US assets increase.
“Meanwhile, Asia demand weakens in the short-term due to prolonged US dollar strength. Gold-backed ETFs experience outflows, but gold’s price finds a floor from continued robust central bank buying,” SSGA said.
