A fine line influenced by rates, risk and growth
Gold is poised for its best annual performance in more than a decade – up 28% through November. Behind this, central bank and investor buying have more than offset a notable deceleration in consumer demand. Asian investors have been a near constant presence, while lower yields and a weakening US dollar in Q3 fueled Western investment flows. However, it is gold’s role as a hedge amidst rising market volatility and geopolitical risk that most likely explains its remarkable performance.
As we look forward, all eyes are focused on what Trump’s second term may mean for the global economy. Thrill-seeking investors may benefit from an early wave of risk-on flows, but potential trade wars and inflationary forces may spill over into an expected subpar economic growth.
The market consensus of key macro variables such as GDP, yields and inflation – if taken at face value – suggests positive but much more modest growth for gold in 2025. Upside could come from stronger than expected central bank demand, or from a rapid deterioration of financial conditions leading to flight-to-quality flows. Conversely, a reversal in monetary policy, leading to higher interest rates, would likely bring challenges. In addition, China’s contribution to the gold market will be key: consumers have been on the sidelines while investors have provided support. But these dynamics hang on the direct (and indirect) effects of trade, stimulus and perceptions of risk.
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