Gold Prices Face Uncertainty Amidst Fed’s Hawkish Projections
The US Federal Reserve’s recent interest rate projections have sent shockwaves through the market, causing gold prices to plummet. However, analysts remain optimistic about the precious metal’s prospects in 2025.
A Shift in Focus
The Fed’s “dot plot” now suggests two interest rate cuts in 2025, a significant decrease from the four quarter-point cuts previously expected. This shift in focus is attributed to concerns about the potential inflationary effects of President-elect Donald Trump’s policies, particularly his proposed trade tariffs.
Dollar Strengthens, Gold Weakens
The US dollar has surged to a two-year high, weighing heavily on gold prices. Higher interest rates and Treasury yields also increase competition for the safe-haven asset, dampening demand. However, analysts argue that these relationships have been inconsistent in recent years, with other factors such as central bank demand and macroeconomic uncertainty playing a larger role.
China’s Influence
Hamad Hussein, commodities economist at Capital Economics, believes that China’s resumed gold purchases and weak macroeconomic outlook will drive safe-haven demand among local investors. This, combined with central banks’ increasing favor for gold purchases, will support gold prices in 2025.
Structural Support
Janet Mui, head of market analysis at RBC Brewin Dolphin, agrees that gold prices will continue to find support next year. She cites emerging market central banks’ desire to increase gold reserves and its role as a hedge against macro risks as key factors.
A Perfect Storm for Gold
Ewa Manthey, commodities strategist at ING, believes that geopolitical tensions, foreign-reserve diversification, and lower interest rates will create a “perfect storm” for gold in 2025. ING predicts gold prices will average $2,760/oz in 2025, up from $2,595 currently.
Short-Term Optimism, Long-Term Caution
While analysts are bullish on gold’s short-term prospects, they acknowledge that Trump’s proposed policies could eventually limit interest rate cuts and provide headwinds to gold in the longer term.
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