Gold hit an all-time high in October 2024, and lots of analysts imagine that the precious metal can reach $3,000 per troy ounce by the top of 2025. Gold has taken a dip since reaching its all-time high, but it surely’s widely expected that the yellow metal will set recent records next 12 months.
If you happen to are wondering why many analysts feel confident that gold will proceed to march higher, understanding the aspects that influence gold prices offers clues.
Lower rates of interest signal higher gold prices
Several aspects determine gold price fluctuations, but few of them carry as much significance as rates of interest. These rates dictate the price of borrowing money and play a significant role in inflation, and its direct impact on gold prices.
Higher rates of interest can decrease inflation and may even end in deflation if those high rates remain unchecked. The Federal Reserve’s rate hikes in 2022 kept the worth of gold flat for the 12 months while tech stocks endured significant losses. Nonetheless, the Fed has since begun reversing course and has lowered rates of interest twice to date in 2024 in response to subsiding inflation, with more cuts expected at its December meeting.
It’s widely expected that the Federal Reserve will proceed to cut back rates going into 2025, although analysts have different opinions about how significant future rate cuts might be. Each rate cut makes it easier to borrow money and may increase inflation in the method. Higher inflation results in higher gold prices.
Gold advantages from inflation because fiat currencies — the currency it’s essential buy gold — lose purchasing power when inflation rises. It’s one reason why groceries and other goods proceed to get dearer. It’s not that groceries offer more value now than they did 20 years ago, but it surely’s a mirrored image of how much value fiat currencies have lost relative to essential services and products.
Geopolitical tensions may also prop gold prices higher
Gold traditionally performs well during times of geopolitical uncertainty. It’s harder to gauge which fiat currencies might be reliable and the way much money printing might be obligatory during these times. Meanwhile, gold preserves its intrinsic value during these times and becomes more useful relative to fiat currencies.
Ongoing global conflicts in Europe and the Middle East can drive gold prices higher. Investors look to reduce their risk during uncertain times, and gold caters to this cohort. Investors can look back to the Seventies to see how gold significantly outperformed the stock market during geopolitical and economic uncertainties.
The stock market generated flat returns from 1970 to 1980, although there was a whole lot of volatility during those years. Meanwhile, gold prices soared, going from $35 per troy ounce in 1971 to $850 per troy ounce in $850. The astonishing 2,329% return crushed the stock market and rewarded investors who selected to mitigate their risk during economic uncertainty.
While gold investors shouldn’t expect those kinds of returns from now until 2030, this historical example demonstrates gold’s ability to comfortably outpace other assets during uncertainty.
Tariffs may also deliver more gains for gold investors
Presidents have a major impact on asset prices resulting from their policies and the way they navigate challenges. President-elect Trump, for instance, is specializing in tariffs, which may increase inflation, and alongside it, the worth of gold.
Trump also believes that he can replace income taxes with tariffs, a development that might increase consumer spending. Elevating the price of products and services while eliminating income taxes can present two tailwinds for precious metals like gold.
Market enthusiasm can increase the demand for gold
Many analysts imagine gold will march higher in 2025 resulting from macroeconomic aspects like lower rates of interest and geopolitical uncertainty. Nonetheless, animal spirits, a term used to explain human emotion driving investment decisions, may also play a task.
As gold rallies, more investors will jump in to capitalize on the momentum alongside heightened bullish sentiment. It should also give current gold investors a positive feedback loop and may result in them accumulating more gold.
The reverse scenario can be true, as any decline in an asset could cause more investors to rush for the exits. Nonetheless, gold looks prefer it is ready up for a powerful rally heading into 2025, and animal spirits act as an amplifier of market activity.
Higher consumer spending should increase gold prices
In response to the U.S. Bureau of Labor Statistics, average consumer spending increased by 5.9% from 2022 to 2023. Higher consumer spending is nice news for gold because the precious metal is integral for a lot of industries, with diverse business applications.
Gold isn’t only for jewelry and rings. It’s also in your smartphone, computer, automobile and other on a regular basis items. Many industries — like dentistry and aviation — also use gold to perform their services or produce their products. Higher consumer spending typically increases the demand for gold, and as more people purchase it, gold’s supply — which is finite — decreases. Higher demand and lower supply present two additional tailwinds for gold prices.
Investors also needs to be mindful of how difficult it’s to search out gold. Research from the World Gold Council indicates that lower than 0.1% of prospected sites end in productive mines. It’s also believed that almost all of the world’s gold is deep inside the Earth’s core, making it difficult to replenish.
These aspects help explain why investors are feeling optimistic about gold. It’s no wonder the valuable metal has been a core component of civilizations for 1000’s of years, and why analysts imagine the valuable metal’s current bull market will carry well into 2025.