Close up of a pile of gold bars.
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A series of unexpectedly hawkish forecasts from the Federal Reserve on the direction of interest rates next year shook the market and hit gold prices, but analysts told CNBC they still believe the precious metal will find solid support in 2025.
The Fed’s “dot plot” – a gauge of policymakers’ outlook – now suggests the central bank will cut interest rates twice in 2025, up from four quarter-percentage point cuts previously expected in September. Concerns about labor market weakness are at the forefront. Central banks are now most concerned about whether incoming President Donald Trump’s policies – especially his threats to impose sweeping trade tariffs – will lead to inflation.
this Dollar The U.S. dollar index soared after Wednesday’s Fed news, with the U.S. dollar index hitting a two-year high as the possibility of a rate hike was seen as boosting the greenback. Gold prices have had an amazing year so far, hitting record highs while falling 2% to their lowest level in a month.
Gold is widely priced in U.S. dollars, and a stronger U.S. dollar has weighed on prices for the precious metal. Traditionally, rising interest rates and rising U.S. Treasury yields also increase competition for safe-haven assets, which in turn dampens demand for gold.
But Capital commodities economist Hamad Hussain said those relationships have been “on and off” over the past few years as broader factors such as demand for gold from central banks, particularly China’s, have outpacing moves in the U.S. dollar and U.S. Treasury.
“Trump’s tariff proposals and a more hawkish Fed do increase downside risks for gold. All else being equal, this will lead to lower gold prices. But we expect non-traditional factors to be stronger next year,” he said in told CNBC over the phone.
Hussein believes that China plays the largest role in this. The central bank of the world’s second-largest economy has resumed gold purchases, while a weak macroeconomic outlook – especially amid the potential escalation of the U.S. trade war – is driving safe-haven demand among local investors. Overall, central banks from Poland to India have also been increasingly inclined to buy gold since the Russia-Ukraine war broke out in 2022, 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 analysis at RBC Brewin Dolphin, also said that gold prices will continue to seek support next year.
“On the margin, a more hawkish Fed, a stronger dollar and rising real yields are negative for gold in the short term. This is especially true after strong gains in gold prices this year and the growing appeal of cryptocurrencies as digital stores of value,” May said said in an email.
“That said, we believe some structural and cyclical support for gold will remain relevant,” Mui continued.
“These include a desire by emerging market central banks to increase the proportion of gold in reserves and a place in investment portfolios as a hedge against various macro risks. We remain overweight gold as a diversification tool against the risk assets of our overweight positions,” she added.
The debate has been going on for years Cryptocurrencies such as Bitcoin may replace gold as the primary “store of value” asset, with skeptics arguing that cryptoassets lack the stability of metals.
Both are theoretically attractive as a refuge from broader geopolitical and market volatility, although this doesn’t always justify cryptocurrency prices.
ING commodities strategist Ewa Manthey said that entering 2025, geopolitical tensions, the diversification of central bank foreign exchange reserves and the fact that interest rates may continue to fall are causing a “perfect storm for gold.”
“Despite the correction in gold prices following yesterday’s Fed statement, we believe the positive momentum in gold prices will continue in the short to medium term,” Mantai said in an email.
ING expects the average gold price to increase to US$2,760/oz in 2025 from the current US$2,595/oz.
Still, Mantai emphasized that her bullishness is for the short to medium term.
“In the longer term, the policies proposed by Trump – including tariffs and tighter immigration controls, which are inflationary in nature – will limit the Fed’s ability to cut interest rates. A stronger dollar and tighter monetary policy could ultimately give Gold offers some resistance.
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