Will gold break the $3,000 per ounce barrier in 2025?

Gold has enjoyed an exceptional year of gains in 2024, beating market expectations and maintaining its status as a safe haven for investors. The precious metal is on track for its best performance since 2010, having recently hit a record high of $2,790 an ounce.

Despite the challenges it has faced in recent months, especially after Donald Trump's victory in the US presidential election, which supports the strength of the dollar and increases the attractiveness of high-risk assets such as stocks, gold has recorded a 28 percent increase.

This is on par with the gains of the Nasdaq 100 (+26%). As 2025 begins, expectations are growing that gold will continue its upward trajectory, with the possibility of reaching new record levels of $3,000. However, economic headwinds may pose challenges to its performance at the start of the new year.

As 2025 begins, expectations are growing that gold will continue its upward trajectory, with the possibility of reaching new record highs of $3,000. However, economic headwinds may pose challenges to its performance at the start of the new year.

Challenges that gold may face

• Strong Dollar and Yields

One of the main drivers of gold’s rally in 2024 has been expectations that global central banks will ease monetary policy as inflationary pressures ease. While some rate cuts have been made, the effects of these policies on gold have been limited by ongoing concerns about inflation.

In December, the Federal Reserve signaled an expected rate cut, causing some volatility as it signaled caution in the year ahead due to ongoing inflationary risks, driven in part by expected U.S. policy shifts, such as tax cuts and tariffs under Trump.

Both the European Central Bank and the Bank of England have also taken a cautious approach, pointing to strong wage growth and inflationary pressures.

As a result, monetary policy is likely to remain tight in early 2025, which could boost bond yields and the U.S. dollar, two factors that often work against gold’s appeal. The dollar index has been on a strong rise since Trump’s chances of winning the election began to rise in October.

From around 100 in September, it jumped to around 108.2 at the end of December. On Friday, the dollar index hit its highest level since November 2022.

According to City Index, higher bond yields are particularly important because they increase the opportunity cost of holding non-yielding assets such as gold. At the same time, the resilience of the US dollar, supported by tighter monetary policies and unexpectedly strong economic data, has made gold more expensive for buyers using weaker currencies. These dynamics could limit gold’s upside potential in the first half of the year.

• Demand concerns in key markets

The two largest gold consumer markets, China and India, are facing challenges that could impact demand. In China, depreciations in the yuan and a slow recovery from the Covid-19 pandemic have made gold less expensive. The yuan’s slide to its lowest levels since the start of the pandemic has also weighed heavily on demand, especially as the Chinese Spring Festival approaches, a traditionally strong period for gold demand.

With jewelry accounting for 65 percent of China's gold consumption, weak purchasing power and economic uncertainty could constrain demand in early 2025.

India, the world’s second-largest consumer of gold, is facing similar pressures. The recent depreciation of the rupee has eroded investors’ purchasing power, making dollar-denominated gold more expensive domestically. This is particularly worrying given that India accounts for more than 25 percent of global jewellery demand.

Higher gold prices are likely to impact consumer spending, especially among middle-income households who make up the bulk of the market.

Alongside currency pressures, geopolitical risks loom. Potential U.S. tariffs on Chinese goods could exacerbate economic pressures, while increased safe-haven demand due to global uncertainty could partly offset these headwinds.

• Gold and Risk Assets

In 2024, investor sentiment has shifted heavily toward riskier assets, driven initially by expectations of interest rate cuts, then by optimism following Trump’s re-election.

Cryptocurrencies such as Bitcoin and XRP have seen massive gains, while stock indices such as the S&P 500 and Germany’s DAX have hit all-time highs.

This shift in risk appetite has reduced the appeal of safe-haven assets like gold toward the end of the year, even though the precious metal and the S&P 500 have been moving in the same general direction in recent years. The question remains: Can gold decouple from risk assets?

Regardless of the stock market's direction, gold's long-term appeal remains intact, as inflation continues to erode the purchasing power of paper currencies, reinforcing gold's status as a store of value.

Moreover, geopolitical tensions – from the Middle East to potential trade wars – could reignite safe-haven demand, providing a counterbalance to last year’s risk-on sentiment.

Possible rise to $3000 in 2025

Despite the short-term challenges, the $3,000 target for gold remains within reach. “The macroeconomic environment for gold has been at its worst in recent months, with the dollar index rising, US bond yields strengthening, and the Japanese yen weakening, all at a time when US economic data has been exceptionally strong. Despite these challenges, gold has managed to maintain its impressive performance,” says Amit Goel, co-founder of PACE 360.

Looking ahead, Goul notes that the overall outlook for gold is more bullish, with the dollar index expected to decline in the first quarter of 2025, as US bond yields approach their peak, and the Japanese yen hitting its lowest levels.

At the same time, US economic data has started to show signs of deterioration in recent weeks, creating a more supportive environment for gold to improve its performance, according to CNBC.

Geopolitical risks and major economic shifts are likely to play pivotal roles in shaping gold’s future trajectory. For example, a breakup of the “Trump trade”—characterized by a strong U.S. dollar and booming stock markets—could weaken the dollar and boost gold prices.

Moreover, if markets see a significant correction in 2025, central banks that reduced their gold purchases after prices peaked in 2024 may resume buying again.

“Between October and November, gold saw a sharp correction, falling from a record high of $2,790 in October to around $2,535 in the second week of November. However, I believe this correction has largely ended and lasted for only two to three weeks. With the improvement in macroeconomic conditions, I believe that gold now needs an additional correction in time,” Gul added.

“2024 was one of the best years for the precious metal in years, with a significant increase of more than 50 percent between October 2023 and October 2024. But these large gains were accompanied by clear market excesses, making corrections necessary in the coming months,” he continued.

He concluded: “Although the price correction has largely ended, the time correction is likely to continue over the next two to three months. If this time correction is completed in that period, gold will be ideally positioned to make significant gains during the second half of 2025.”

Source: Agencies + Middle East