The price of gold reached new all-time highs in 2024, surpassing $2,500 per ounce in August, then $2,700 in October. But can this upward dynamic continue into 2025? Several fundamental factors suggest yes. Decryption.
The return of real rates to low or even negative levels
Historically, the price of gold moves in the opposite direction to US real interest rates. As a reminder, the “real” rates are obtained by the nominal bond rates, adjusted for inflation. Low or even negative real rates mean that bond yields do not compensate for the loss of purchasing power linked to inflation. Investors are therefore more inclined to hold gold, since they are not penalized by the lack of yield (dividends or interest) from gold.
However, since the beginning of 2022, gold continued to rise despite the rise in real ratesan unusual dynamic and which indicates that other factors are at work. This decoupling between gold and real American yields is a central element for knowing everything about the price of gold and its current determinants, as regularly explained by the BDOR Agency, a recognized specialist in precious metals.
In any case, after this rise in 2022, real rates on 10-year US Treasury Bonds fell back below 2% in 2024 and are currently hovering at 1.50%. We therefore find a particularly buoyant environment for gold, according to analysts from the BDOR Agency, who recall that the yellow metal has historically outperformed in periods of low or negative real rates.
Markets expect the Federal Reserve to begin a cycle of reduction in key rates in November, in response to the economic slowdown and the gradual decline in inflation. For example, JP Morgan anticipates “core” inflation (excluding food and energy) at 3.5% at the end of 2024, then at 2.6% in 2025 in the United States. Slowing down therefore, but still above the 2% target. This combination of falling nominal rates and persistent inflation should therefore keep real rates lowor even negative in the years to come.
Record purchases by central banks
Gold purchases by central banks, particularly in emerging countries, constitute another powerful factor supporting prices. In 2023, central bank purchases reached a record level of 1,037 tonnesup almost 150% compared to 2022. China was by far the biggest buyer, with official reserves which jumped 15% in one year to reach 2,400 tonnes at the end of 2023.
This movement accelerated further at the start of 2024. Over the first three months of the year, net acquisitions by central banks reached 290 tonnesa rate 36% higher than initial estimates. And this despite an average gold price increasing by 5% over the period. This is the fourth consecutive quarter of strong increase in sovereign purchases. This appetite of central banks therefore creates a structural demand which acts as a floor for prices. These massive and regular purchases limit the potential for correction in the event of a one-off bearish shock.
And the trend should remain solidly upward in 2025, with sovereign demand expected to still exceed 800 tonnes. In detail, China should remain the world's leading buyerwith reserves that could reach 3,000 tonnes. But India, Russia, Turkey and many other emerging countries are also expected to continue to accumulate gold at a sustained pace. Even European central banks such as Poland and Hungary have recently significantly increased their gold reserves.
The relative weakness of the dollar and the interest in paper gold
After having already reached record levels in August and then in October, the yellow metal should continue its momentum next year. This upward dynamic is expected to continue in 2025, with an average goal of $2,600 over the entire year. These forecasts, already ambitious given current price levels, could even be exceeded in the event of a marked increase in geopolitical tensions and a faster-than-expected weakening of the dollar. In these scenarios, a gold price at $3,000 per ounce, or even beyond, would no longer be excluded.
Last aspect we are monitoring: the expected convergence of the monetary policies of the major central banks (Fed, ECB, Bank of Japan) should also support flows towards gold ETFs. With a less profitable American currency and potentially less sought after as a safe haven if geopolitical and financial risks increase, international investors will repatriate part of their capital into gold.
After having been negative for a long time in 2022-2024, flows on gold ETFs could become clearly positive again from the end of 2024 and especially in 2025, with the prospect of lasting easing on the bond market, which we have mentioned. Several observers mention a potential collection of more than 300 tonnes for these index funds in 2025, representing a contribution to global gold demand of more than 10%.
For comparison, even at the height of the Covid crisis in 2020, when investors massively turned to gold in the face of the collapse of the stock markets, flows into gold ETFs had reached “only” 120 tons over a month. A rebound in flows of the proportions mentioned would therefore have a considerable impact on the gold market.
This dynamic could also encourage individuals to buy gold coins to take advantage of the trend and build up tangible savings. Gold coins, such as Napoleon or the Krugerrandare in fact a simple and accessible way to expose yourself to the yellow metal, while benefiting from a physical object with strong heritage and aesthetic value.
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