Gold gains 27% in 2024 to beat S&P 500 and Nifty 50 returns, forecasts see fresh highs ahead

World Gold Council bets a rangebound year for the bullion. "...if the economy were to perform according to consensus in 2025, gold may continue to trade in a similar range to that seen in the last part of the year, with the potential for some upside."

The year 2024 is closing out with gold shining bright, clocking nearly 27% returns for the year, higher than the Nifty 50 or S&P 500 index, as geopolitical turmoil propped up the safe haven appeal of bullion.

This is been the strongest year for gold since 2010, and the outlook remains bullish for the precious metal. "A similar rally could occur in 2025, but this will largely hinge on geopolitical developments," Reuters quoted Zain Vawda, market analyst at MarketPulse, projecting a base case for gold to be at $2800/oz.

Going ahead, President-elect Donald Trump's inauguration, and the anticipated policy changes, have strengthened the US dollar, thus taking some sheen off the gold rally since November. The looming spectre of higher tariff on American imports could stoke inflationary expectations, as also reflected in the US Fed's commentary. Chair Jerome Powell had earlier in December hinted at fewer rate cuts in 2025 fearing high inflation.

The total demand for bullion during the third quarter crossed $100 billion, for the first time ever. Three key factors have been at play in helping gold prices touch record highs this year.

The escalating geopolitical risks in the middle-east between Israel and proxies of Iran, an ongoing war in Ukraine, and the fall of Bashar al-Assad's regime in Syria have all increased the demand for gold as a safe-haven asset.

On top of it, central banks have been significant buyers of gold this year, keeping the prices higher. Though less than 2022-2023, the year will still see central banks as net buyers of bullion. Global central banks have been net buyers of bullion for almost 15 years, starting Q2CY09. Any tapering off in demand here could put pressure on prices in 2025.

Rate cuts by the US Federal Reserve have made gold more attractive by reducing the opportunity cost of holding bullion. Investors looking to hedge against inflation too have turned to gold, driving up its price.

Next year, the US Dollar, near two-year highs, will be a key factor for precious metals. Going forward, forecasts on the precious metals are extremely bullish, with UBS seeing gold reach $2,900/oz by end of 2025 while Citi, Goldman Sachs and JPMorgan are pegging a target of $30,00 by December 2025.

The precious metal hit an all-time high price of $2,788.54 per ounce on October 30 this year. The year underscored gold's value as a store of wealth and a hedge against uncertainties, with the total market capitalization all the gold ever mined to be estimated at around $17.7 trillion.

Going into 2025, chair Jerome Powell has said that the Fed's base case is two rate cuts in the year, with inflation softening but still above target. European central banks will also likely cut rates by a similar amount.

World Gold Council bets a rangebound year for the bullion. "...if the economy were to perform according to consensus in 2025, gold may continue to trade in a similar range to that seen in the last part of the year, with the potential for some upside," said WGC in its Outlook 2025 report. Key risks here would be higher interest rates and lower economic growth.

"Overall, a more dovish Fed will be beneficial for gold, but a prolonged pause or policy reversal would likely put further pressure on investment demand," the report added.

The precious metal may face competition from equities and real estate in Asia during 2025, with Chinese demand contingent to the growth rate. Demand for gold in India seems to be more stable going into 2025, as it is less likely to be impacted by a tariff war that President-elect Trump is threatening with. "Economic growth remains above 6.5%, and any tariff increase will affect it less than other US trading partners given a much smaller trade deficit. This, in turn, could support gold consumer demand," said WGC.

It is also important to note that India’s trade deficit in November rose to $37.8 billion, an unprecedented figure, on the back of a four-fold rise in inbound shipments of gold. Moneycontrol learns that the Commerce Ministry is looking into this data along with the Central Board of Indirect Taxes and Customs (CBIC), and a formal clarification on the matter could be expected soon.