Despite Fed’s hawkish signal, analysts see support for gold in 2025

The US Federal Reserve shocked the markets with an unexpected series of falco projections for the path of interest rates next year, setting gold prices up for a hit – but analysts told CNBC they still have solid support for the precious metal in 2025.

The Fed’s “dot plot,” an indicator of policymakers’ outlook, now suggests the Fed will cut interest rates twice in 2025, compared to four quarter-point cuts previously forecast in September, when concerns about the weakening of the labor market were ahead. mind The big concern for the central bank is now that the policies of President-elect Donald Trump – especially his threat of sweeping trade tariffs – will cause inflation.

U American dollar jumped after the Fed news on Wednesday, with the dollar index hitting a two-year high, as the potential for higher rates was seen to boost the currency. Gold prices – which have been on a stunning run and climbed to record highs this year – meanwhile fell 2% to their lowest level in a month.

Gold is largely denominated in dollars, with a stronger greenback weighing on prices of the precious metal. Higher interest rates and higher US Treasury yields traditionally increase competition for safe-haven assets, dampening demand for gold.

But these relationships have been “on and off” for the past few years, as broader factors such as demand for gold from central banks – particularly that of China – have outweighed movements in the dollar and the US Treasury, according to Hamad Hussain, commodities economist at Capital. Economy.

“Trump’s tariff proposals and a more hawkish Fed add to the risk for gold. All else being equal, that would lead to lower gold prices. But we expect non-traditional factors to be stronger next year,” he told CNBC by phone. .

China plays the biggest part in this in view of Hussain. The central bank of the world’s second-largest economy has resumed buying gold, while a weak macroeconomic outlook — especially amid a potentially escalating U.S. trade war — is driving safe-haven demand among investors. local In general, since the outbreak of the Russia-Ukraine war in 2022, central banks from Poland to India have also increasingly favored gold purchases, he added.

“As a result, gold prices are likely to remain near record highs in the coming year,” Hussain said.

The debate has raged for years cryptocurrencies like bitcoin could replace gold as the leading “store of value” asset, with skeptics arguing that crypto assets lack the stability of metal.

Both have theoretical appeal as a refuge from geopolitical and broader market volatility, although this is not always confirmed for crypto prices.

Geopolitical tensions heading into 2025, along with the diversification of foreign reserves by central banks and the fact that interest rates will likely continue to go lower, create a “perfect storm for gold,” Ewa said. Manthey, commodities strategist at ING.

“Despite the pullback we saw in gold prices following yesterday’s Fed statement, we believe gold’s positive momentum will continue in the short to medium term,” Manthey said by email.

ING sees gold prices averaging $2,760/oz in 2025, up from $2,595 currently.

Manthey also stressed that his bullishness was for the short to medium term.

“In the long term, Trump’s proposed policies — including tariffs and tighter immigration controls, which are inflationary in nature — will limit interest rate cuts by the Federal Reserve. A stronger US dollar and a more tightening could eventually provide some wind to gold.” she said.