Will Gold Prices Go Up Despite Global Economic Uncertainty

Gold prices have been on a rollercoaster ride in recent years, and with global economic uncertainty on the rise, many investors are wondering if they'll continue to climb.

Historically, gold has been a safe-haven asset during times of economic turmoil, as seen in the 2008 global financial crisis when gold prices surged by 25% in a single year.

Some experts predict that gold prices will continue to rise due to inflation, which can erode the value of other assets and make gold a more attractive investment.

Central banks around the world have been buying up gold reserves, with the International Monetary Fund (IMF) alone adding 212 tonnes to its reserves in 2020.

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Gold prices have been rising, and it's not hard to see why. Interest rates have been falling, making gold more attractive to investors.

One reason for this is that gold doesn't pay interest, so in a low-interest environment, it becomes more appealing. Josh Saul, chief executive of The Pure Gold Company, notes that "gold, which pays no interest, becomes more attractive in a low interest environment".

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Central banks have also been buying up gold, particularly in emerging markets like China and India. This is driven by a growing mistrust in the US dollar and a desire to hedge against global economic fragmentation.

Gold is considered a safe-haven asset, so investors flock to it during periods of volatility. Ongoing geopolitical risks, such as the ongoing tensions between countries, are supportive to the gold price.

Here are the key factors driving the gold price:

A strong US dollar can make gold more expensive for buyers using other currencies, reducing its global demand. However, a weaker dollar can make gold more affordable for foreign buyers, boosting its price.

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Gold prices are expected to reach new record highs in early 2025, with Goldman Sachs Research forecasting a price of $2,700 per troy ounce.

Gold has already increased more than 20% this year, peaking at a record of over $2,500 per troy ounce. This surge is largely due to central bank purchases, which have tripled since Russia's invasion of Ukraine in 2022.

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Goldman Sachs Research expects this buying spree to persist, driven by concerns about US financial sanctions and the growing US sovereign debt burden. Central banks' interest in gold is likely to continue, making it a valuable asset in uncertain economic times.

The Federal Reserve's interest rate cuts will also bring Western investors back into the gold market, making it an attractive investment opportunity. Rate cuts tend to make gold more appealing, as it doesn't offer a yield and is seen as a safe-haven asset.

Gold offers significant value as a portfolio hedge against geopolitical shocks, such as tariffs and debt sustainability fears. This is why Goldman Sachs Research sees roughly 15% upside in gold prices under a rise in financial sanctions equal to the rise seen since 2021.

Here are the three key factors driving the expected increase in gold prices:

You can get exposure to gold through a financial contract, such as an exchange-traded product, as suggested in the best gold ETFs article.

Investing in gold miners is another way to get indirect exposure by investing in their shares or through a gold fund or investment trust.

Buying physical gold bars or gold coins is also an option.

Tom Stevenson recommends holding around 5-10% of your portfolio in gold, which is similar to holding cash.

This allocation can provide insurance and dry powder to complement the growth and stability of shares and bonds in a balanced portfolio.

Gold prices are influenced by a combination of global and domestic factors, including the strength of the U.S. dollar, which makes gold more expensive for buyers using other currencies, reducing its global demand.

Gold is traditionally seen as a hedge against inflation and market uncertainty, but when global markets stabilize, its demand and price tend to decline.

A strong U.S. dollar has been a critical factor in the recent price dip, and the value of the Indian rupee against the dollar plays a significant role in determining domestic gold prices.

Gold prices have soared to new heights this year, increasing more than 20% and peaking at a record of over $2,500 per troy ounce.

Goldman Sachs Research forecasts the price will reach $2,700 by early next year, buoyed by interest rate cuts by the Federal Reserve and gold purchases by emerging market central banks.

Gold is the preferred near-term long (the commodity expected to go up in the short term) and hedge against geopolitical and financial risks, according to Goldman Sachs Research strategists.

Three factors could push gold prices higher: central bank purchases, Fed rate cuts, and potential geopolitical shocks.

Central banks have been buying gold at a brisk pace since Russia's invasion of Ukraine in 2022, and Goldman Sachs Research expects this buying spree to persist.

Rate cuts by the Fed will likely bring Western investors back into the gold market after largely being absent during the metal's sharp rally over the past two years.

Gold offers significant value as a portfolio hedge against developments such as tariffs, Fed subordination risk, and debt sustainability fears.

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Gold prices are recovering from the sharp December 18 drop, but upside momentum faces challenges as traders digest the Federal Reserve's hawkish tone and anticipate policy shifts.

Gold is currently testing the retracement zone of $2607.35 to $2629.13, and a break above this level could signal strength.

However, significant resistance lies ahead at $2663.51 to $2693.40, coinciding with the 50-day moving average at $2666.83.

Experts predict that if the trio of low interest rates, a weak dollar, and high demand from central banks continues, the gold price may well rise further.

Gold price performance in 2025 is expected to be "rangebound, with slight upside", according to Artigas and the World Gold Council.

Goldman Sachs' gold price outlook sees the yellow metal clearing the $3,000 mark by the end of 2025.

Similarly, Eric Strand, founder and CEO of AuAg Funds, expects the inflationary cocktail to send the gold price above $3,000 during the year, and perhaps as high as $3,300.

Here are some key factors influencing gold prices in 2025:

Gold prices are influenced by a combination of global and domestic factors. Traditionally, gold serves as a hedge against inflation and market uncertainty, but its demand and price tend to decline when global markets stabilise.

A strong U.S. dollar makes gold more expensive for buyers using other currencies, reducing its global demand. The value of the Indian rupee against the dollar plays a significant role in determining domestic gold prices, with a stronger rupee making gold more affordable for Indian buyers.

Interest rates have a significant impact on gold prices, with a low interest environment making gold more attractive. History suggests the gold price does well when interest rates fall, as central banks typically cut interest rates to encourage growth during economic stagnation.

Central bank purchases are also causing the gold price to soar, with unprecedented purchases from emerging markets like China and India. These countries are buying gold to hedge against global economic fragmentation and growing mistrust in the US dollar.

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Gold prices are influenced by a combination of global and domestic factors. Traditionally, gold serves as a hedge against inflation and market uncertainty, but when global markets stabilise, its demand—and consequently, its price—tends to decline.

The strength of the U.S. dollar has been a critical factor in the recent price dip, making gold more expensive for buyers using other currencies and reducing its global demand. A stronger rupee typically makes gold more affordable for Indian buyers.

Interest rates play a significant role in determining the gold price. History suggests the gold price does well when interest rates fall, as central banks typically cut interest rates to encourage growth when the economy is stagnating.

Central bank purchases also cause the gold price to soar, with unprecedented purchases from emerging markets like China and India. These countries are hedging against global economic fragmentation and accelerating their efforts towards de-dollarization.

Geopolitical uncertainty is another factor driving the gold price, as gold is considered a safe-haven asset. Investors often flock to it during periods of volatility in an attempt to escape market shocks.

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The Fed's hawkish stance is limiting gold's upside, making it harder for the metal to rally. The Federal Reserve's guidance for fewer rate cuts in 2025 is introducing headwinds for gold.

A more restrictive monetary policy typically supports the dollar and Treasury yields, reducing gold's appeal. This is because a stronger dollar makes gold more expensive for foreign buyers, and higher yields on government bonds make gold less attractive as a safe-haven investment.

Traders are closely monitoring U.S. jobless claims data, with forecasts predicting 224,000 claims for the week ending December 21. This data point has the potential to impact the dollar and, in turn, gold prices.

Gold is currently trading at $2625.45, up $8.58 or +0.33% at 12:15 GMT. However, significant resistance lies ahead at $2663.51 to $2693.40, coinciding with the 50-day moving average at $2666.83.

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Holiday trading is a unique beast, and this time of year is no exception. Markets are thinned out due to holidays, which can lead to light trading volumes.

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The Fed's 2025 rate plans are a major focus for investors right now. Markets are eagerly awaiting further signals on their economic policies.

Donald Trump's incoming administration is also on everyone's mind, with many wondering how their policies will impact the economy. This uncertainty can create a safe-haven appeal for gold.

Gold has already gained 27% this year, and its safe-haven appeal is likely to continue during uncertain periods.