Three major factors strongly support further gold price increases in 2025

Tongdun Finance APP News - ING Group stated that optimistic macroeconomic conditions, continued geopolitical risks, and strong sovereign purchases will drive gold prices to new highs in 2025.

Ewa Manthey, senior commodity strategist, wrote in ING's 2025 gold forecast: "Gold is one of the best-performing major commodities this year. Gold prices have surged more than 25% year-to-date, hitting record highs on the back of optimistic rate cut sentiment, strong central bank buying, and strong buying from Asia. Heightened geopolitical risks and safe-haven demand from uncertainty ahead of the US election in November also supported gold's record rally this year."

Figure 1: In

Gold hit a new high in 2024 amid Fed rate cuts and tensions in the Middle East

The start of the Fed's rate-cutting cycle significantly boosted gold prices in 2024. She stated: "The Fed implemented the long-awaited rate cut in September, the first since March 2020, cutting rates by 50 basis points, creating favorable conditions for gold prices. Another 25-basis-point cut at the November Fed meeting kept the target range for the federal funds rate at 4.5-4.75%. "

Manthey added: "The main question facing the gold market now is how quickly the Fed will ease its policy after Trump wins the US presidential election, and the inflationary impact of Trump's policies could lead to fewer rate cuts than previously expected. Our US economist James Knightley believes the US central bank will cut rates by another 25 basis points in December, but the outlook beyond that is less clear, with a high probability of pausing rate cuts at the January Federal Open Market Committee (FOMC) meeting."

Figure 2: Falling borrowing costs are favorable for gold

Knight has lowered his rate cut expectations for 2025 from 50 basis points to 25 basis points quarterly starting in the first quarter of 2025, with rates bottoming out at 3.75% in the third quarter of 2025.

ING expects strong central bank gold demand over the next year, which will continue to support historically high gold prices.

Manthey wrote: "Central banks continue to increase their gold reserves, although the pace of purchases slowed in the third quarter as high prices deterred some purchases. Healthy central bank demand for gold is also driven by concerns among some countries about their overseas assets being subject to sanctions similar to those imposed on Russia after the US and Europe decided to freeze Russian assets, as well as a shift in foreign exchange reserve strategies."

She said that while sovereign purchases remain strong this year, ING expects the total for the year to be lower than in 2022 and 2023.

Figure 3: Annual central bank demand may be lower than the previous two years (each color represents a quarter)

Manthey said: "Looking ahead to next year, we expect central banks to remain buyers of gold due to geopolitical tensions and the economic environment. A survey conducted by the World Gold Council in April 2024 found that 29% of central bank respondents intend to increase their gold reserves in the next 12 months."

ING also expects that recent ETF inflows will resume growth and continue to grow in 2025.

She noted: "Supported by funds from North America and Asia, global gold ETFs have seen inflows for six consecutive months. Investors' holdings of gold ETFs typically increase when gold prices rise and vice versa. However, gold ETF holdings have been declining for most of 2024, while spot gold prices have hit record highs. ETF inflows finally turned positive in May."

Manthey said that although ETF holdings fell in early November after the US election, "Looking ahead to 2025, we believe that inflows should continue as the Fed continues to cut rates."

ING's overall position is that gold prices will rise further in 2025, and the bank expects the average price in the first and second quarters of 2025 to be close to this year's record high.

She said: "We believe that the positive momentum for gold will continue in the near to medium term, and the macroeconomic backdrop is likely to continue to favor precious metals, as falling interest rates and geopolitical tensions continue to diversify foreign exchange reserves, creating a perfect storm for gold."

She concluded: "In the long run, policies proposed by Trump, including tariffs and stricter immigration controls, are inherently inflationary and will limit the Fed's ability to cut rates. A stronger dollar and tighter monetary policy could eventually put some headwinds on gold, but escalating trade friction could increase gold's safe-haven appeal."

ING expects the average spot gold price in the first and second quarters of 2025 to be $2,800 per ounce, then falling to $2,750 in the third quarter and $2,700 in the fourth quarter, with an average price of $2,760 per ounce for 2025.