Gold has
been valued for its stability when the financial fires are raging. That stable
nature was underscored in 2024 when its price shot upward, gaining over $700 per ounce. This amounted to a 34% increase since January. The vibrant price
increase has gotten traders and investors all jazzed up again about gold, with
the most pressing question among them being: could gold exceed the $3,000 price
point by 2025? Kar Yong Ang, a financial
market analyst at Octa broker, delves into the topic.
Inflation, interest
rates, and geopolitics
Inflation
and interest rates influence gold prices. When inflation soars, investors tend
to buy gold to protect their purchasing power. They view it as a much safer
investment than stocks or bonds because stocks are prone to sudden price drops,
and bonds can lose value when interest rates rise due to high inflation.
Historically, though, when real interest rates (which are inflation-adjusted) have declined, gold has just soared. As some would say, ‘There is no better buy’.
By 2024,
the percentage of overall reserves held in gold by central banks had reached 10%, a significant climb from the 3% level recorded just 10 years earlier.
Although we are still in an era where most reserve currencies are fiat (for
example, paper with little intrinsic value), an increasing number of central
banks seem to believe that holding gold adds an element of prudence to their
reserve diversification strategy. Emerging economies, especially in Asia, are seeing their central banks
take on an increasingly important role in the gold market. China (which now holds 5% of its reserves in gold), along with India, has
emerged as one of the preeminent buyers of gold.
Moreover, the central banks of the emerging economies
have, since 2022, stepped up their pace of gold buying. The catalyst for this
last development was the unprecedented freezing of Russian assets, which
prompted multiple nations to reconsider the makeup of their reserves.
Furthermore, the global shift towards a more
sustainable economy, including investment in renewable energy and green
technologies, is driving limited demand for certain commodities,
such as precious metals that include gold. Gold plays an important role in
clean energy technologies, including solar panels and electronics for
energy-efficient systems. This increased demand for technological gold is
exacerbated by growing concerns about the lack of resources necessary for the
green transition.
Moreover, geopolitical tensions and economic
uncertainty further underscore the attractiveness of gold as a safe asset,
attracting investors seeking relief amid rapid changes in global markets. The
Ukraine conflict, strained US-China relations, and unrest in the Middle East
have sent investors scurrying to safe-haven assets. And when it comes to safe
havens, gold is a time-tested destination. Its record of price stability in an
unstable world at present stands in stark contrast to the behaviour of the stock
market and other assets. An instance of this is China’s recent accumulation of
gold, which now makes up 5% of its foreign exchange reserves. This is yet another sign
of a shift towards resilience in a global economy fraught with uncertainty.
Technical analysis: key levels to watch
According to the technical analysis, the asset’s price
is still in the uptrend, even on a high timeframe. The long-term bullish trend
also hasn’t changed for a bearish one. The $3,000 target, which aligns with the
4.236 Fibonacci extension level, is pretty real. However, this level may be too
ambitious for the moment of publication.
Prospects for 2025 – factors shaping gold’s future
According to the Chief Economists’ Survey from the World Economic Forum, economists are uncertain
about global economic stability. 54% of respondents forecast a steady outlook
and 37% project further deterioration. Future fiscal policies targeting climate
adaptation, a shifting demographic landscape, and ramped-up defence spending
are set to push inflation upwards. All these look to gold as an inflation
hedge; however, it’s not just private investors: central banks are in on the
gold thing, too. They are expected to keep topping up their gold reserves and,
in the face of all these other demands, are likely to maintain long-term
demand.
Will gold hit the $3,000-per-ounce price in 2025? The
scenario seems very possible. However, for the asset’s price to reach a rather
ambitious target, favourable market conditions are required. They include both
macroeconomic and geopolitical factors. For example, the re-election of Donald
Trump introduces additional variables into the equation. Trump’s geopolitical
stance, particularly regarding global trade and conflict resolution, could
influence investor sentiment and safe-haven demand. If his promises regarding
the resolution of numerous conflicts are fulfilled, investors may partially
abandon safe-haven assets for the riskier ones.
About Octa
Octa is an international broker that has been providing online trading
services worldwide since 2011. It offers commission-free access to financial
markets and a variety of services used by clients from 180 countries who have
opened more than 52 million trading accounts. To help its clients reach their
investment goals, Octa offers free educational webinars, articles, and
analytical tools.
The company is involved in a comprehensive network of
charitable and humanitarian initiatives, including the improvement of
educational infrastructure and short-notice relief projects supporting local
communities.
Since its foundation, Octa has won more than 90
awards, including the ‘Most Reliable Broker Global 2024’ award from Global
Forex Awards and the ‘Best Mobile Trading Platform 2024’ award from Global
Brand Magazine.