Gold set for another good year after strong start
Though surpassed by far more volatile commodities like coffee, gold has soared almost 10 per cent so far this year, hitting a record high of $US2,870.93 per ounce.
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Forget crypto and stocks, gold has been one of the best performing asset classes so far in 2025.
Though surpassed by far more volatile commodities like coffee, spot gold has soared almost 10 per cent year to date, hitting a record high of $US2,870.93 per ounce after soaring 27 per cent in 2024.
Crypto has been the standout for the past two years, with Bitcoin up 277 per cent in that time frame.
But so far this year, the world’s most well-known cryptocurrency has risen only 4 per cent.
There have been some contenders in the stock market – Germany and Spain are up over 8 per cent.
But after soaring 124 per cent over the past two years thanks to the AI boom, the high-flying “Magnificent 7” index of US tech giants has stalled as Nvidia faces a competitive threat from China’s new AI start-up, DeepSeek.
The S&P 500 is up 3 per cent and Australia’s ASX 200 is up 4.4 per cent as interest rate cuts loom.
With recession-like conditions in parts of the Eurozone, interest rates falling, a trade war starting, inflation lingering, US stock valuations stretched, heightened geopolitical uncertainty and central banks building up their gold reserves it’s not hard to see why the rise in gold may prove more sustainable than some of the other markets that have taken off this year.
While briefly faltering on Monday amid a scramble for liquidity globally when the US looked set to go ahead with 35 tariffs on Canada and Mexico, as well as the 10 per cent tariff increase that started on Tuesday, gold was quickly back hitting record highs.
Gold hit record highs in each of the past five trading days, rising 4 per cent in that time.
After dropping around 9 per cent around the time of the US election, gold has soared about 13 per cent since mid-November.
In a sign of short-term demand, Bloomberg reported that gold in the Bank of England vault is trading at an extreme discount of $US5 per ounce to the wider market as fears over potential Trump tariffs spark a scramble for available bullion that’s resulting in weeks-long queues to withdraw metal.
“Much of our view on gold prices in 2025 rests on uncertainty leading to haven bids and investor interest. Already in 2025, we are seeing tariffs drive precisely that type of uncertainty, which has helped push gold to new all-time highs.” said Helima Croft, Head of Global Commodity Research at RBC Capital.
This “disconnect” comes as traders worldwide rush to get gold to the US ahead of the potential imposition of tariffs and to capture premium prices.
US President Donald Trump hasn’t targeted precious metals specifically as he ratchets up his trade war. But gold dealers are worried they could be included in blanket tariffs that he’s threatened.
Geopolitical risks could be a significant driver for gold this year, particularly if the US continues to increase tariffs or actually starts to go ahead with its plan to “take over” the Gaza Strip.
There’s also a major question mark about China’s economic outlook, which could worsen while policymakers continue to delay a major stimulus plan because of uncertainty about the US trade policy.
But the fact that gold has risen 9 per cent since September even as the US dollar has risen about 7 per cent against its trade weighted index is in large part due to accelerating demand from central banks and ETFs, according to the World Gold Council.
“Geopolitical and economic uncertainty remains high in 2025, and it seems as likely as ever that central banks will once again turn to gold as a stable strategic asset,” the industry association said in its Gold Demand Trends report this week.
The World Gold Council report highlighted that gold demand hit a record high last year as central banks “continued to hoover up gold at an eye-watering pace.”
Central bank buying exceeded 1,000 tonnes for the third year in a row. Their buying accelerated sharply in the December quarter to 333 tonnes.
Gold jewellery was one of the only sources of demand that fell in 2024 as gold prices soared.
Unsurprisingly, high prices dampened demand in the jewellery sector, with annual consumption decreasing by 11 per cent to 1,877 tonnes.
The decline in jewellery demand was driven largely by weakness in China, where demand fell 24 per cent year-on-year, but Indian demand remained resilient, dropping just 2 per cent in 2024, in a record-high price environment. Spending on gold jewellery jumped 9 per cent to US$144bn.
Meanwhile, investment demand for gold rose 25 per cent to a four-year high of 1,180 tonnes.
Gold ETFs had a sizeable impact. In contrast to the heavy outflows of the prior three years, 2024 was the first year since 2020 in which holdings were essentially unchanged.
Global gold ETFs added 19 tonnes in the December quarter, marking two consecutive quarters of inflows for the asset class. Bar and coin demand were in line with 2023 volumes at 1,186 tonnes.
“We expect central banks to stay in the driving seat and gold ETF investors to join the fray,” the report said.
“Jewellery demand will remain under pressure, and we may see further growth in recycling. Mine supply is expected to remain robust.”
Central banks bought 1,045 tonnes of gold last year, worth about $US96bn, with Poland, India and Turkey, the biggest buyers, the report said.
Back in the 1990s, central banks were slashing their gold reserves. However, they’ve been net buyers of gold for the past 15 years.
The pace of annual purchases roughly doubled since the war in Ukraine, when Russia’s foreign reserves were frozen and other central banks decided to rebalance their reserves away from US dollar assets.
“Gold once again dominated headlines in 2024, with prices reaching 40 record highs last year,” said Louise Street, Senior Markets Analyst at the World Gold Council.
“But the demand trajectory of 2024 was far from linear, with central banks posting strong demand in the March quarter before moderating through the middle of the year and finishing with a strong December quarter.
“Likewise, the second half of the year saw a notable resurgence from Western investors which, combined with remarkable growth in Asian flows, brought global gold ETF flows into positive territory in the third and fourth quarters.
“This was fuelled by the start of rate cutting cycles by many central banks and heightened global uncertainties, including the US presidential election and escalating tensions in the Middle East.”
Ms Street expects central banks to remain in the driving seat this year, while gold ETF investors could increase their buying while interest rates continue to fall.
“Geopolitical and macroeconomic uncertainty should be prevalent themes this year, supporting demand for gold as a store of wealth and hedge against risk.”
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Originally published as Gold set for another good year after strong start
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