Gold investors brace for a rocky road ahead as BMI, a unit of Fitch Solutions, projects significant downside risks for the precious metal in 2025 while gold prices ave started to fall since Donald Trump won US elections.
The firm predicts heightened volatility for gold prices, driven by the U.S. Federal Reserve’s measured approach to interest rate cuts and broader global economic shifts. While gold has enjoyed a historic peak in 2024, BMI warns that the tide may be turning.
2024: A year of highs and stability for gold prices
BMI maintained its 2024 gold price forecast at USD 2,375 per ounce, emphasising that previous predictions for the year have been largely accurate. Year-to-date, gold prices have averaged USD 2,352 per ounce, with a high of USD 2,790 per ounce on October 31, fueled by geopolitical uncertainty and the U.S. presidential elections.However, Donald Trump’s re-election and the subsequent reduction in market uncertainty led to a retreat in gold prices as investors shifted towards the strengthening U.S. dollar. BMI expects gold prices to stabilise in a range of USD 2,200 to USD 2,600 per ounce through the end of Q1 2025.
2025: A more challenging landscape for gold
BMI identifies several factors that will shape gold’s performance in the coming year:
U.S. Federal Reserve’s Interest Rate Policy
The Fed’s approach to interest rate cuts will be pivotal for gold prices. BMI forecasts a cumulative reduction of 125 basis points (bps), bringing rates to 3.50% by the end of 2025. However, the Fed’s decisions will hinge on inflation, labor market, and economic data, introducing uncertainty.If rate cuts are slower or smaller than expected, gold could face downward pressure due to its lack of yield. Conversely, aggressive cuts could drive investors toward gold as a safe-haven asset.
Strength of the U.S. Dollar
A robust U.S. dollar could spell trouble for gold prices. The dollar’s recent rally, fueled by higher growth expectations, fiscal deficits, and inflationary pressures from trade policies, has reduced gold’s appeal. While BMI expects the dollar to remain strong initially, it could soften as global risk assets perform well.
Geopolitical and Economic Risks
Geopolitical tensions, including the Russia-Ukraine war, Middle Eastern conflicts, and rising trade disputes under Trump’s presidency, will provide some support for gold as a safe haven. However, these risks may not be sufficient to counteract other bearish factors.
On the economic front, BMI forecasts global growth to remain stable at 2.6% in 2024 and 2025, with risks on both sides. Upside factors include potential tax cuts and increased oil production in the U.S., while downside risks stem from escalating tariffs, supply-side inflation, and regional conflicts.
Inflation Dynamics
Inflation, a traditional driver of gold demand, is expected to ease in 2025. While trade-related risks could spur localized inflationary pressures, the overall outlook suggests a slowdown in gold’s appeal as an inflation hedge.
Long-term outlook for gold prices
Beyond 2024, BMI anticipates a gradual decline in gold prices as risk-on sentiment returns with global economic recovery. Reduced geopolitical tensions, particularly in the Russia-Ukraine conflict, and the reversal of pandemic-induced gold holdings will further weigh on prices.
However, BMI does not foresee a return to pre-COVID gold levels. From 2024 to 2028, gold prices are projected to average USD 2,195 per ounce, significantly higher than the USD 1,393 per ounce average in 2019.
