Outlook on the Fundamental of Gold in 2025: Analyzing the Short-term Dilemmas at the Beginning of the Year and the Opportunities throughout the Year

In the complex and changeable pattern of the global economy and financial markets, gold, as a special asset with both hedging and investment attributes, has attracted much attention for its price trend in 2025. Looking back, the fluctuation of gold prices has always been closely linked to many macro factors. Looking ahead to 2025, we can easily find that the short-term unfavorable factors may cast a shadow over the first few months of the year, but this is not enough to overshadow the potential opportunities and changes throughout the year.

Entering 2025, although the monetary policy paths of major global economies are gradually diverging, some developed countries may still maintain relatively high interest rate levels at the beginning of the year. Taking the Federal Reserve as an example, if it continues to keep the federal funds rate at a high level to suppress the remaining inflation or prevent the economy from overheating, it will undoubtedly significantly suppress the gold price. On the one hand, higher interest rates make fixed-income assets such as bonds more attractive, and funds tend to flow out of the gold market and into the bond area that can provide stable coupon income, weakening the investment demand for gold. On the other hand, the rise in real interest rates (nominal interest rates minus inflation expectations) further reduces the relative attractiveness of gold, an interest-free asset, because the opportunity cost for investors to hold gold has increased significantly.

As the world's major reserve currency, the trend of the US dollar has always shown a strong negative correlation with the price of gold. At the beginning of the year, affected by relatively resilient US economic data and the return of hedge funds, the US dollar is expected to maintain its strength. The continued tightness of the US labor market may promote steady wage growth, which in turn supports consumption, enabling the US economy to show certain comparative advantages against the backdrop of uneven global economic recovery. This advantage attracts international funds to pour into the US market, pushing up the US dollar exchange rate. Under a strong US dollar, gold denominated in US dollars becomes more expensive for non-US dollar area investors, and their purchasing power declines, suppressing the physical and investment demands for gold, especially in emerging markets, where gold imports may be limited due to the depreciation of local currencies against the US dollar.

After experiencing market turmoil in some periods of 2024, investors' risk appetite is expected to gradually recover at the beginning of 2025. With the easing of global trade tensions and the reduction of policy uncertainties in major economies, risk assets such as the stock market may usher in a new round of valuation repair rallies. Factors such as improved corporate earnings expectations and innovation-driven in the technology sector will prompt funds to accelerate their flow into the stock market in pursuit of higher capital returns. At this time, the status of gold as a safe-haven asset is relatively weakened, and investors will reduce the proportion of gold in their asset allocations and turn to embrace risk assets instead, resulting in insufficient capital supply in the gold market and downward pressure on prices.

Although interest rates are high at the beginning of the year in an attempt to tame inflation, the stubbornness of inflation cannot be underestimated. Frictions in the process of global supply chain restructuring, the bottom support of commodity prices, and the rigid rise in labor costs may cause inflation expectations to quietly rise after mid-year. As a traditional inflation hedge tool, once inflation expectations heat up again, investors will inevitably re-examine the role of gold in their asset portfolios to increase gold allocation to resist the erosion of purchasing power. By then, the demand for gold will be boosted, and the price is expected to stabilize and rebound, breaking out of the sluggish range at the beginning of the year.

The international geopolitical stage has never been truly calm, and the same is true in 2025. There are many uncertainties lurking, from the continuation of regional conflict hotspots to new developments in the game among major powers. Energy disputes in the Middle East and the aftershocks of the geopolitical situation in Eastern Europe may intensify at any time, triggering a tsunami of risk aversion in the global market. Once the tensions escalate, gold will quickly return to its role as a safe haven, and a large amount of hedge funds will pour into the gold market, driving up prices. The demand explosion triggered by geopolitical issues often has suddenness and scale, which is sufficient to reverse the decline of gold brought about by the rise in risk appetite at the beginning of the year.

In recent years, central banks around the world have continuously increased their gold reserves to optimize the structure of foreign exchange reserves and enhance financial stability. This trend is expected to continue in 2025. Central banks of emerging economies will regard gold as an important strategic asset in the process of pursuing monetary sovereignty and dealing with external financial shocks, and steadily increase their gold reserve scales. As a heavyweight participant in the gold market, the continuous gold purchase behavior of central banks not only directly absorbs a large amount of physical gold, reducing market supply, but also sends a strong signal 认可 of the value of gold to the market, guiding other investors to follow suit in their allocations, providing a solid bottom support for gold prices.

Taking into account both short-term unfavorable factors and medium-term driving forces, the gold market in 2025 is expected to show a trend of first decline and then rise. Constrained by factors such as interest rates, the US dollar, and risk appetite at the beginning of the year, prices may fluctuate at a low level, testing investors' confidence. However, with the convergence and 发力 of forces such as inflation, geopolitics, and central bank gold purchases, gold will gradually break free from the downward trend after mid-year and start an upward trend. If investors can understand this rhythm change and make reasonable asset allocations, laying out positions cautiously and buying at lows at the beginning of the year, and adding positions timely when the medium-term trend becomes clear, they will be able to ride the express train of the gold price rebound and achieve steady asset appreciation. For upstream and downstream enterprises in the gold industry, they also need to flexibly adjust their production, sales, and inventory strategies according to this dynamic outlook to cope with the changing market and move forward steadily in the gold wave of 2025.

Looking ahead to the gold market in 2025, the short-term difficulties are just small bumps on the way forward. The opportunities and turning points it contains are the real keys worthy of attention and grasping. It will continue to write the legendary chapter of gold assets in the global financial landscape.