Close up of a stack of gold bars.
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The US Federal Reserve unexpectedly shook markets hawkish set of forecasts for the path of interest rates next year, which will send gold prices soaring – but analysts told CNBC they still see solid support for the precious metal in 2025.
The Fed's “scatter chart,” a gauge of policymakers' outlook, now suggests the Fed will cut interest rates twice in 2025, compared with the four quarter-point cuts expected earlier in September, when concerns about a weakening labor market were at the forefront. mind. The central bank's biggest concern right now is whether new President-elect Donald Trump's policies – particularly his threat to introduce drastic trade tariffs – will prove inflationary.
The US dollar rose following Wednesday's Fed news, with the dollar index hitting a two-year high as the potential for higher interest rates was seen to strengthen the currency. Gold prices – which have surged to record highs this year – meanwhile fell 2% to a one-month low.
Gold is commonly denominated in dollars, and a stronger dollar influences prices of the precious metal. Higher interest rates and higher U.S. Treasury yields have also traditionally increased competition for safe-haven assets, reducing demand for gold.
But that relationship has been on pause over the past few years as broader factors such as demand for gold from central banks – especially China – outweighed the dollar and U.S. Treasury movements, according to Hamad Hussain, a commodities economist at Capital Ekonomika.
“Trump's tariff proposals and a more hawkish Fed actually increase the risk of a downside in the gold price. All things being equal, this would lead to lower gold prices. However, we expect non-traditional factors to be stronger next year,” he told CNBC by phone.
According to Hussain, China plays the biggest role in this. The central bank of the world's second-largest economy has resumed purchases of gold, while a weak macroeconomic outlook – especially amid a potential escalation of the US trade war – fuels demand among local investors for the safe-haven stock. Overall, since the outbreak of the Russia-Ukraine war in 2022, central banks from Poland to India have also become increasingly supportive of gold purchases, he added.
“As a result, gold prices are likely to remain near record highs in the coming year,” Hussain said.
Cryptocurrency competition
Janet Mui, director of market intelligence at RBC Brewin Dolphin, also said gold prices will continue to find support next year.
“On the margin, a more hawkish Fed, a stronger US dollar and higher real yields are negative for gold in the short term. This is especially true after the strong rally in gold prices this year and the growing attractiveness of cryptocurrencies as a digital store of value, “Mui said by email.
“That said, we believe some structural and cyclical support for gold will remain important,” Mui continued.
“These include the desire of emerging market central banks to accumulate gold as a percentage of reserves and portfolio space to hedge against various macro risks. We maintain the advantage of gold as a diversifier in relation to our overweight position risk assets,” she added.
The debate has been going on for years whether cryptocurrencies such as bitcoin could replace gold as a leading “store of value” asset, and skeptics argue that crypto assets lack the stability of the metal.
Both have theoretical appeal as a shelter from broader geopolitical and market volatility, although this has not always translated into cryptocurrency prices.
Continued geopolitical tensions in 2025, combined with central banks diversifying foreign exchange reserves and the fact that interest rates will likely continue to fall, create a “perfect storm for gold,” said Ewa Manthey, commodities strategist at ING.
“Despite the decline in gold prices we saw following yesterday's Fed statement, we believe gold's positive momentum will continue in the short to medium term,” Manthey said in an email.
ING predicts gold prices will average $2,760 per ounce in 2025, up from $2,595 today.
Nevertheless, Manthey stressed that her focus is short to medium term.
“In the long run, Trump's proposed policies – including tariffs and tighter immigration controls that are inflationary in nature – will limit Federal Reserve rate cuts. A stronger US dollar and tighter monetary policy may ultimately hinder the zloty,” he added. she said.