US dollar, Fed rate cut to drive gold prices in 2025

Chennai: Gold made 40 new record highs y-t-d in 2024 and gold price has increased by more than 28 per cent, outperforming most of the global asset classes, finds World Gold Council. In 2025, the actions of the US Federal Reserve and the direction of the US dollar will continue to be important drivers for gold.

In 2024, gold reached 40 new record highs y-t-d and total gold demand in the third quarter surpassed US$100 billion for the first time.

By appreciating 28 per cent, gold was the best performer among global asset classes, including US stocks, Emerging Market stocks, US bonds, US currency, commodities and Global Treasuries other than US.

“As we look into 2025, market consensus suggests that the Fed will deliver 100 bps in cuts by year-end, with inflation softening but still above target. European central banks will also likely cut rates by a similar amount. The US dollar is expected to remain flat or slightly weaken as conditions normalise, while global growth remains positive but continues to grow below trend,” said WGC.

The actions of the Fed and the direction of the US dollar will continue to be important drivers for gold. Moreover, economic expansion and its direct effect on consumer demand, risk and uncertainty as a trigger for flows from investors looking for effective hedges also will drive gold prices. US’ America-first agenda can result in inflationary pressures and disruptions to supply chains. In addition, concerns about European sovereign debt are once again mounting.

This year, Asian investors added to gold’s performance, particularly during the first half, and Indian demand benefitted from the reduction in import duty in the second half. India’s economic growth remains above 6.5 per cent, 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.

Central bank demand in excess of 500 tonnes should also have a net positive effect on gold’s performance.