Gold Holds Decline as Traders Focus on Uncertain 2025 Rate Path

Gold prices have been on a rollercoaster ride in recent months, with investors grappling with a strengthening US dollar and higher yields. Despite these headwinds, gold has managed to hold its ground, thanks to its safe-haven status and low correlation with other asset classes. As we look ahead to 2025, geopolitical risks and inflation expectations are expected to continue driving gold's performance, while the US dollar and yields remain crucial factors.



Gold's safe-haven status and low correlation with other asset classes have contributed to its resilience in the face of a strengthening US dollar and higher yields. Despite the USD's rally and rising yields, gold has maintained its value, demonstrating its ability to act as a reliable store of value and a hedge against market volatility. This is evident in the decoupling of gold's relationship with U.S. real yields, as seen in the J.P. Morgan research (Number: 0).

Geopolitical risks and inflation expectations are key drivers of gold's performance. As geopolitical tensions rise, investors seek safe-haven assets like gold, driving up its price. Inflation expectations also influence gold, as it serves as a hedge against currency devaluation. However, the relationship between gold and the US dollar and yields is complex. A weaker dollar and lower yields typically boost gold, but recent decoupling suggests other factors, such as geopolitical risks and inflation expectations, may be more influential.



Central bank buying and physical holder reluctance to sell gold impact its price and contribute to its resilience. Gold's resilience in 2024, despite decoupling from U.S. real yields and Fed rate cuts, can be attributed to central bank buying and physical holder reluctance to sell. Central banks added 396.1 tons of gold to their reserves in 2024, a 15% increase from 2023 (World Gold Council). This increased demand, driven by geopolitical risks and diversification, supports gold prices. Additionally, physical holders, including retail investors and jewelers, have been reluctant to sell, even during price rallies. This aversion to shorting bullion, despite outsized gains, underscores gold's structurally bullish drivers outside of U.S. real yields. As a result, gold prices have remained resilient, averaging $2,500/oz in the fourth quarter of 2024, as predicted by J.P. Morgan Research.

Geopolitical tensions, particularly between the US and China, have historically been a significant driver of gold prices. As these tensions escalate, investors often turn to gold as a safe-haven asset, driving up its price. In 2025, continued geopolitical uncertainty could lead to increased demand for gold, potentially pushing its price higher. However, it's essential to note that other factors, such as interest rates and inflation, also play a crucial role in gold's price trajectory. Therefore, while geopolitical tensions may contribute to gold's price movement, they are not the sole determinant.

Central banks, particularly from emerging markets, have been significant gold buyers in recent years. In 2024, they added 673 metric tons to their reserves, the highest since 2018 (World Gold Council). This trend is expected to continue, driven by geopolitical risks and currency diversification. As emerging markets' central banks increase their gold holdings, demand for the precious metal will rise, potentially pushing prices higher.

The potential for new financial sanctions or concerns about the US debt burden could also impact gold's price in 2025. According to Goldman Sachs Research, these factors could drive the price of gold to reach $2,700 by early 2025. This is due to gold's status as a safe-haven asset, which tends to appreciate during times of geopolitical uncertainty and economic instability. As investors seek refuge from market volatility, gold's appeal as a store of value and a hedge against inflation increases, potentially leading to higher prices.

In conclusion, gold's performance in 2025 will be influenced by a combination of factors, including geopolitical risks, inflation expectations, central bank buying, and potential financial sanctions. While the US dollar and yields remain crucial factors, other drivers may play a more significant role in determining gold's price trajectory. As investors navigate the uncertain rate path in 2025, gold's safe-haven status and low correlation with other asset classes make it an attractive option for those seeking to hedge against market volatility and currency devaluation.