Gold is poised for its best annual performance in more than a decade – up 28% through November. Behind this, central bank and investor buying have more than offset a notable deceleration in consumer demand. Asian investors have been a near constant presence, while lower yields and a weakening US dollar in Q3 fueled Western investment flows. However, it is gold’s role as a hedge amidst rising market volatility and geopolitical risk that most likely explains its remarkable performance.
As we look forward, all eyes are focused on what Trump’s second term may mean for the global economy. Thrill-seeking investors may benefit from an early wave of risk-on flows, but potential trade wars and inflationary forces may spill over into an expected subpar economic growth.
The market consensus of key macro variables such as GDP, yields and inflation – if taken at face value – suggests positive but much more modest growth for gold in 2025. Upside could come from stronger than expected central bank demand, or from a rapid deterioration of financial conditions leading to flight-to-quality flows. Conversely, a reversal in monetary policy, leading to higher interest rates, would likely bring challenges. 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.
Figure 1: Gold responds to a combination of factors that influence its role as a consumer good and investment asset
Hypothetical macroeconomic scenarios and their implied gold performance*
Expected Fed funds rate
Current 4.5% - 4.75%
100bp lower by year end
Current 4.5% - 4.75%
5.5% by year end
Current 4.5% - 4.75%
3% by year end
Economic scenario
Below trend recovery
Higher for longer
Dovish fed
Opportunity cost
Economic expansion
Risk and uncertainty
Momentum
Implied gold performance
Rangebound with slight upside
Downside pressure
Notably higher
Colour key (effect on gold):
Positive
Neutral
Negative
Source: Bloomberg, Oxford Economics, World Gold Council *Based on market consensus and other indicators by Oxford Economics as of 30 November 2024. Impact on gold performance based on average annual prices as implied by the Gold Valuation Framework. See Figure 3 for details.
Table 1: Gold has performed strongly in 2024
Gold price and return across currencies*
USD (oz)
EUR (oz)
JPY (g)
GBP (oz)
CAD (oz)
CHF (oz)
INR (10g)
RMB (g)
TRY (oz)
AUD (oz)
30 November price
2,651
2,509
12,751
2,084
3,711
2,336
76,400
616
91,981
4,065
Y-t-d return
27.6%
33.7%
35.1%
27.7%
35.1%
33.7%
21.4%
28.0%
50.3%
33.9%
Y-t-d average price
2,366
2,181
11,511
1,848
3,233
2,080
70,268
551
77,621
3,573
Y-t-d avg vs 2023 avg
21.9%
21.5%
31.2%
18.4%
23.4%
19.3%
19.0%
22.5%
67.8%
22.2%
Source: Bloomberg, ICE Benchmark Administration, World Gold Council *As of 30 November 2024. Based on the LBMA Gold Price PM in USD, expressed in local currencies, except for the India and China where the MCX Gold Price PM and Shanghai Gold Benchmark PM are used, respectively.
2024: A record year
The gold price has increased by more than 28% y-t-d in US dollars, trading 22% higher on average this year than during 2023; its performance across currencies was equally strong (Table 1). Gold reached 40 new record highs y-t-d and total gold demand in the third quarter surpassed US$100 billion for the first time.
Investment demand, especially through over-the-counter transactions, was supported by an undercurrent of geopolitical risk and volatility in many regional financial markets. Central banks continued to add gold to reserves y-t-d, with buying picking up speed in early October. And, for most of the third quarter, Western investors flocked back to gold as central banks started cutting interest rates.
Against this backdrop, gold remains one of the best performing assets of the year (Chart 1).1
Chart 1: Gold has outperformed most major asset classes this year
Major asset class performance y-t-d*
Chart 1: Gold has outperformed most major asset classes so this year
Chart 1: Gold has outperformed most major asset classes so this year
Major asset class performance y-t-d*
*As of 30 November 2024. Indices used Bloomberg Barclays Global Treasury ex US, Bloomberg Barclays US Bond Aggregate, ICE BofA US 3-Month Treasury Bills, New Frontier Global Institutional Portfolio Index, MSCI World ex US Total Return Index, Bloomberg Commodity Total Return Index, MSCI EM Total Return Index, LBMA Gold Price PM (USD/oz), MSCI US Total Return Index
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
*As of 30 November 2024. Indices used Bloomberg Barclays Global Treasury ex US, Bloomberg Barclays US Bond Aggregate, ICE BofA US 3-Month Treasury Bills, New Frontier Global Institutional Portfolio Index, MSCI World ex US Total Return Index, Bloomberg Commodity Total Return Index, MSCI EM Total Return Index, LBMA Gold Price PM (USD/oz), MSCI US Total Return Index.
2025: A tale of two halves?
Sort of landing
All eyes are on the US. Trump’s second term may provide a boost to the local economy but could equally elicit a fair degree of nervousness for investors around the world.
As we look into 2025, market consensus suggests that the Fed will deliver 100 bps in cuts by year end, with inflation softening but still above target. European central banks will also likely cut rates by a similar amount. The US dollar is expected to remain flat or slightly weaken as conditions normalise, while global growth remains positive but continues to grow below trend.
In this context, the actions of the Fed and the direction of the US dollar will continue to be important drivers for gold. But just as the past few years have shown, these two are not the only factors that determine gold’s performance. We instead rely on a more robust framework that allows us to capture the contribution of all sectors of gold demand and supply.
Specifically, we look at the role of:
Economic expansion – and its direct effect on consumer demand.
Risk and uncertainty – as a trigger for flows from investors looking for effective hedges.
Opportunitycost – making gold more (or less) attractive relative to bond yields.
Momentum – which can boost trends or, equally, mean-revert them.
Our analysis based on QaurumSM suggests that, if the economy were to perform according to consensus in 2025, gold may continue to trade in a similar range to that seen in the last part of the year, with the potential for some upside (Figure 2).
Figure 2: Market consensus suggests rangebound performance for gold in 2025
Consensus expectations and select gold drivers*
Expected Fed funds rate
Current 4.5% - 4.75%
100bp lower by year end
Economic scenario
Below trend recovery
Opportunity cost
10yr: stable, marginally down
Dollar: flat to slightly down (normalisation)
Economic expansion
Below-trend growth
Risk and uncertainty
Inflation falls but slightly above target
Risk-on positioning
Geopolitical risks elevated
Momentum
Commodities down marginally
Gold net positioning normalises
Implied gold performance
Rangebound with slight upside
Colour key (effect on gold):
Positive
Neutral
Negative
Source: Bloomberg, Oxford Economics, World Gold Council *Based on market consensus and other indicators as of 30 Nov 2024. Impact on gold performance based on average annual prices as implied by the Gold Valuation Framework. See Figure 3 for details.
As we discussed in our mid-year outlook, this implied performance likely indicates that gold is efficiently reflecting all the currently available information.
Risk-on/risk-off
Trump starts his second term in late January but the US stock market is already banking on a pro-business agenda with a near 7% increase since early November. Tech stocks (and the Magnificent 7) have done even better.
A more business-friendly fiscal policy combined with an America-first agenda is likely to improve sentiment among domestic investors and consumers. This will likely favour risk-on trades in the first few months of the year. The question, however, is whether these policies will also result in inflationary pressures and disruptions to supply chains. In addition, concerns about European sovereign debt are once again mounting, not to mention continued geopolitical instability, particularly in light of the events in South Korea and Syria in early December.
In all, this could prompt investors to look for hedges, such as gold, to counter risk.
The Fed on a tightrope
Monetary policy is limited in scope and its effects take time to become evident, complicating the decisions made by central bankers about whether to continue, pause or reverse the course of a given policy.
The Fed is aiming to engineer a hard-to-come-by soft landing. It has so far managed to cool inflation without taking the wind out of the sails of the economy. But 2025 will likely not prove easy.
There are many reasons why inflation can rebound, but the economy is still not strong and a reversal in policy could deteriorate credit conditions. If the Global Financial Crisis taught us anything, it is that when issues in the system start to unravel, they unravel fast!
Historically, gold has risen by an average of 6% in the first six months of a rate cut cycle. Its subsequent performance has been influenced by the length and depth of that cycle (Chart 2).
Overall, a more dovish Fed will be beneficial for gold, but a prolonged pause or policy reversal would likely put further pressure on investment demand.
Chart 2: Aggressive cutting cycles have served gold well
Gold and USD returns in the first six months of a rate cut cycle over the past 40 years*
Chart 2: Aggressive cutting cycles have served gold well
Chart 2: Aggressive cutting cycles have served gold well
Gold and USD returns in the first six months of a rate cut cycle over the past 40 years*
* Data from January 1984 to August 2024 covering the past 10 Fed easing cycles. Calculation based on the LBMA Gold Price PM, ICE BofA US 3-month Treasury Bills, and DXY Index.
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
Sources:
Bloomberg,
ICE Benchmark Administration,
World Gold Council; Disclaimer
* Data from January 1984 to August 2024 covering the past 10 Fed easing cycles. Calculation based on the LBMA Gold Price PM, ICE BofA US 3-month Treasury Bills and DXY Index.
Can Asian demand continue?
China and India are gold’s largest markets. More generally, Asia makes up more than 60% of annual demand (excluding central banks). Its contribution to performance can’t be understated.
This year, Asian investors added to gold’s performance, particularly during the first half, and Indian demand benefitted from the reduction in import duty in the second half.
However, the risk of trade wars looms large. Chinese consumer demand will likely depend on the health of economic growth – whether through normal means or government stimuli. And while the same factors that influenced investment demand in 2024 are still present, gold may face competition from stocks and real estate.
India seems to stand on a better footing. Economic growth remains above 6.5%, and any tariff increase will affect it less than other US trading partners given a much smaller trade deficit. This, in turn, could support gold consumer demand. At the same time, gold financial investment products have seen remarkable growth and while they make up a small portion of the overall market, they have been a welcome addition to gold’s ecosystem.
Central banks as buyers
Central banks have been net buyers for almost 15 years (Chart 3).2 The importance of gold in foreign reserves is well recognised: the role it plays as a long-term store of value, as a diversifier, its performance in times of crises, and the fact that it does not carry credit risk. In an environment of ever-increasing sovereign debt and geopolitical uncertainty, gold’s role is well cemented.
Chart 3: Central banks have been net buyers since Q2 2009
Annual central bank and official sector demand*
Chart 3: Central banks have been net buyers since Q2 2009
Chart 3: Central banks have been net buyers since Q2 2009
Annual central bank and official sector demand*
*As of Q3 2024.
Source: Metals Focus, Refinitiv GFMS, World Gold Council
Sources:
Metals Focus,
Refinitiv GFMS,
World Gold Council; Disclaimer
While central bank demand will likely end the year below previous records, it has remained strong, positively contributing to gold’s performance to the tune of 7%–10%.3
Equally, central banks will remain an important part of the puzzle. Central bank buying is policy driven and thus difficult to forecast, but our surveys and analysis suggest that the current trend will remain in place. In our view, demand in excess of 500 tonnes (the approximate long-term trend) should still have a net positive effect on performance. And we believe central bank demand in 2025 will surpass that. But a deceleration below that level could bring additional pressures to gold.
Conclusion
Our analysis, based on QaurumSM, examines gold’s potential reaction to underlying market conditions based on the current consensus as well as more bearish and bullish scenarios (Figure 3).
Figure 3: Hypothetical macroeconomic scenarios and their implied gold performance*
Expected Fed funds rate
Current 4.5% - 4.75%
100bp lower by year end
Current 4.5% - 4.75%
5.5% by year end
Current 4.5% - 4.75%
3% by year end
Economic scenario
Below trend recovery
Higher for longer
Dovish fed
Opportunity cost
10yr: stable, marginally down
10yr: higher
10yr lower
Dollar: flat to slightly down (normalisation)
Dollar: up on US exceptionalism
Dollar up on safe haven
Economic expansion
Below-trend growth
Material slowdown
Growth near trend
Risk and uncertainty
Inflation falls but slightly above target
Inflation reaccelerates
Inflation drops below 2%
Risk-on positioning
Market volatility
Risk-off positioning
Geopolitical risks elevated
Geopolitical risks elevated
Geopolitical risks elevated
Momentum
Commodities down marginally
Commodities rebound
Commodities sell off
Gold net positioning normalises
Gold net positioning weakens
Gold net positioning strengthens
Implied gold performance
Rangebound with slight upside
Downside pressure
Notably higher
Colour key (effect on gold):
Positive
Neutral
Negative
Source: Bloomberg, Oxford Economics, World Gold Council Based on market consensus and other indicators by Oxford Economics as of 30 November 2024. Impact on gold performance based on average annual prices as implied by the Gold Valuation Framework. Our tool, QaurumSM can be customised to reflect different inputs from those herein included.
Gold is likely to remain rangebound if existing market expectations are correct. However, 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 market conditions will improve gold’s performance.
Finally, a key checkpoint will be central bank demand as it will continue to provide a boost to gold if it remains at a healthy level.
Gold’s final price performance will depend on the interaction of gold’s four key drivers: economic expansion; risk; opportunity cost; and momentum.
Footnotes
1US stocks have continued to move higher in recent days, and as of 9th December have increased by more than 30%, y-t-d.
2Central banks turned from net sellers to net buyers in the second quarter of 2009. However, it was not until 2010 that annual demand became consistently net positive.
3Our analysis, based on QaurumSM, suggests that, holding everything else constant, a net 30 tonne increase translated to approximately a 1% rise in the gold price. When considering the balancing effects of other sectors, we estimate that the additional demand for gold this year – which will likely be close to 300 tonnes above the long-term average – would imply an additional 7%–10% increase in price performance.
Diversification does not guarantee any investment returns and does not eliminate the risk of loss. Past performance is not necessarily indicative of future results. The resulting performance of any investment outcomes that can be generated through allocation to gold are hypothetical in nature, may not reflect actual investment results and are not guarantees of future results. The World Gold Council and its affiliates do not guarantee or warranty any calculations and models used in any hypothetical portfolios or any outcomes resulting from any such use. Investors should discuss their individual circumstances with their appropriate investment professionals before making any decision regarding any Services or investments.
This information may contain forward-looking statements, such as statements which use the words “believes”, “expects”, “may”, or “suggests”, or similar terminology, which are based on current expectations and are subject to change. Forward-looking statements involve a number of risks and uncertainties. There can be no assurance that any forward-looking statements will be achieved. World Gold Council and its affiliates assume no responsibility for updating any forward-looking statements.
Information regarding QaurumSM and the Gold Valuation Framework
Note that the resulting performance of various investment outcomes that can be generated through use of Qaurum, the Gold Valuation Framework and other information are hypothetical in nature, may not reflect actual investment results and are not guarantees of future results. Neither World Gold Council (including its affiliates) nor Oxford Economics provides any warranty or guarantee regarding the functionality of the tool, including without limitation any projections, estimates or calculations.
