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Easing gold prices: A welcome trend for consumers

Year-end price target for gold has been adjusted to $2,910 per ouncec

Published: Wed 8 Jan 2025, 10:07 PM

By
Issac John

Shoppers browsse jewellery at the Deira Gold Souk in Dubai. Photo by Shihab

Prospective jewellery and bullion buyers have reason to celebrate as the recent record rally in gold prices shows signs of cooling. Analysts are now revising their bullish gold price projections, pushing the anticipated $3,000 per ounce target from the end of 2025 to mid-2026.

Experts attribute this shift to a slower-than-expected pace of monetary policy easing by the US Federal Reserve this year. Consequently, the year-end price target for gold has been adjusted to $2,910 per ounce, with only one or two rate cuts anticipated this year, down from earlier expectations of three to four.

Additionally, a significant discovery of 11,000 tonnes of gold valued at $83 billion in China’s Hunan province has added headwinds to the ongoing rally. This finding marks one of the largest gold discoveries in history. While China is already the largest gold producer, contributing 10 per cent of the global supply, its consumption surpasses production. Analysts suggest that while this discovery may reduce China’s reliance on imports from countries like Australia and South Africa, it is unlikely to dramatically shift the global supply-demand balance overnight.

Gold prices have surged more than 30 per cent in 2024 compared to the previous year, reaching a historic high of $2,748.23 per ounce in October. However, as of Tuesday afternoon, the price had eased to $2,664.40 per ounce. In Dubai’s Gold Souk, the price of popular 22k jewellery stands at Dh296.75, a notable increase from Dh 227.25 a year ago.

U. Nagaraja Rau, director of Bhima Jewellers, expressed optimism, stating: “Softening gold prices are a welcome relief for consumers. In fact, interest in gold jewellery has been steadily rising, as consistent price increases boost customer confidence in gold as an investment.”

Goldman Sachs had previously projected gold prices would reach $3,000 by the end of 2025. Their recent update indicates that slower monetary easing will likely dampen demand for gold-backed exchange-traded funds (ETFs) next year. They now foresee a peak spot price of $2,910 per ounce by the fourth quarter, while steady central bank demand remains a crucial long-term price driver.

Economists at the investment bank have recalibrated their expectations for interest rate cuts this year, reducing their forecast from 100 to 75 basis points. This updated outlook is still more dovish than current market pricing, reflecting expectations of lower underlying inflation.

Analysts also voiced scepticism regarding the potential impact of the incoming Trump administration’s policies on interest rates. They anticipate continued strong demand from central banks seeking to diversify their official reserves away from the dollar, especially in light of the US government’s increasing debt.

While Trump’s election and proposed ‘America-First’ policies initially pushed bond yields and the dollar higher—creating challenges for gold prices—analysts believe these policies could also lend support to gold prices through 2025. “An unprecedented escalation of trade tensions could revive speculative positioning in gold,” they noted.

Chinese consumers have consistently led global demand for gold, with their consumption of jewellery, bars, and coins reaching 630 tonnes in 2023 — a 10 per cent increase from the previous year. The recent gold discovery in Hunan is likely to reinforce China’s position as the world’s largest gold consumer and producer. However, an increase in domestic supply could stabilise local markets and temporarily moderate global gold prices, presenting a potential opportunity for international buyers. Analysts suggest that India, one of the largest gold importers, could benefit from any short-term stabilisation in gold prices. For retail investors, this discovery may offer a brief window to purchase gold at more favourable prices before anticipated future increases.

The World Gold Council (WGC) expects a more modest growth trajectory for gold in 2025. Nonetheless, they emphasise that central bank purchases and heightened interest in gold ETFs will continue to provide essential price support. Central banks globally, including India’s Reserve Bank, may seize this opportunity to bolster their gold reserves, according to the WGC.

While the gold market faces some headwinds, the easing prices and new discoveries present significant opportunities for buyers and investors alike.