Gold Bulls Embrace for Another Stunning Year in 2025: Here Are 5 Primary Forces
3min read In 2024, few investments have outperformed gold, marking its strongest year since 2010 and one of the largest annual gains in history. Many Wall Street gold bulls believe that gold prices are poised for further gains in 2025.
Performance speaks volumes. Comex gold futures have surged by 27% to $2,624 per ounce so far this year. This outpaces the S&P 500's 25% gain and is close to the Nasdaq Composite Index's 31% annual gain.
Gold's strength has been nearly continuous throughout the year, with only a slight dip following the US presidential election. This was expected, as investors nervous about the election outcome may have shifted funds from safe havens back to riskier assets afterward.
Currently, many on Wall Street remain optimistic about gold's prospects for the coming year. Analysts from JPMorgan, Goldman Sachs, and Citigroup have set a target price of $3,000 for gold in 2025. Here are five key reasons why these gold bulls have reasons to be optimistic:
Global Easing Cycle
It's difficult to predict exactly how many times the Federal Reserve will cut interest rates in 2025. However, even if the Fed's December dot plot halved the number of expected rate cuts to two next year, a rate-cutting cycle is still likely to continue for some time. Additionally, due to potential external factors like trade wars, other central banks around the world are also unlikely to halt their rate-cutting measures.
Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold.
Some Wall Street analysts expect that as investors become disappointed with declining interest rates, a portion of the $6.7 trillion held in money market funds could flow into gold ETFs, such as the world's largest gold ETF, SPDR Gold Shares (GLD).
Greg Shearer, Head of Base and Precious Metals Strategy at JPMorgan, stated that this is the most bullish phase in the gold cycle.
Geopolitical Uncertainty
During times of heightened geopolitical conflict, investors large and small often flock to gold. The geopolitical landscape in 2025 is fraught with uncertainty.
From wars in the Middle East and Ukraine to trade disputes under US President Trump's tariff policies, uncertainty is pervasive. The prospect of inflation resurging also keeps investors on edge.
In this context, investors in major economies may show a particularly strong interest in buying gold.
Axel Merk, President and Chief Investment Officer of Merk Investments, stated that given these market conditions, gold is likely to continue serving as a hedge against uncertainty, attracting substantial investor attention. "Personally, I'm not selling any of my gold, nor do I plan to. I don't think the gold market has peaked yet."
Central Bank Purchases
Central banks around the world, especially those in countries with strained relations with the West, have been aggressively buying gold in recent years. Following the outbreak of the Russia-Ukraine conflict in 2022, Western sanctions on Russia prompted some emerging market central banks to abandon or reduce their dollar-based reserve assets. Instead, they are placing more reserves in assets beyond the reach of foreign sanctions—gold.
Goldman Sachs analysts noted that sanctions on Russia marked a significant turning point, leading many emerging market central banks to rethink what constitutes a risk-free asset.
According to the World Gold Council, a survey of central bank governors in 2024 revealed that 29% of them planned to increase their gold reserves in the following 12 months, the highest percentage since the survey began in 2018.
Notably, in early December, the People's Bank of China's official reserve assets report showed that as of the end of November, China's gold reserves stood at 72.96 million ounces, up by 160,000 ounces from 72.80 million ounces at the end of October. This indicates that the central bank has resumed gold purchases after a six-month hiatus.
Limited Industrial Demand Impact
Another advantage of gold is that, apart from being a store of wealth, it has few other practical uses.
While some might mention jewelry demand, gold jewelry sometimes acts not just as a demand source but also as a supply source when prices rise. People are more motivated to sell old jewelry to recyclers when demand is high, potentially becoming a significant supply source.
JPMorgan's Shearer noted, "Gold, unlike other commodities, doesn't have the industrial baggage and therefore isn't severely impacted by trade disruptions."
This means that an economic slowdown (such as a new trade war initiated by the Trump administration) won't significantly hit gold demand as it might for other precious metals with industrial uses, like silver and platinum.
Bull Market Momentum
Historically, when a gold bull market gains momentum, it tends to last for a considerable time.
Statistics show that in the past six years when gold's annual gains exceeded 20%, it continued to rise in five of the following years. Citibank analysts noted that in these five instances, gold's average gain exceeded 15%.
The only exception occurred four years ago. After rising about 25% in 2020, gold prices fell by 3.6% in 2021.
