Gold’s long-term upward trajectory remains solid, yet the precious metal could face a significant decline before the end of the year, according to Capital Economics. David Oxley, the firm’s Chief Climate and Commodities Economist, has revised his gold price forecast for 2025 to $2,750 per ounce but cautions that this ascent will not be linear.
Oxley has kept his 2024 year-end price target at $2,200 per ounce, suggesting a potential 12% drop from current levels, with December gold futures recently trading at $2,538 per ounce. The market has encountered strong resistance at $2,550 per ounce in recent weeks.
“While we anticipate gold prices will end next year approximately 10% higher than their current level, the journey to that point is expected to be uneven. It is likely that gold prices could experience a significant decline before any potential rise,” Oxley explained. “Given the steady increase in gold prices this year, a pullback is quite plausible.”
Oxley also highlighted that gold’s potential for further gains could be hindered by diminishing expectations for aggressive Federal Reserve rate cuts. The CME FedWatch Tool indicates only a 17% chance of a 50-basis-point cut in the near term.
Market expectations shifted sharply after a softer-than-expected inflation report. On Wednesday, the U.S. Bureau of Labor Statistics announced that headline inflation for the past year rose by 2.5%, down from July’s 2.9%. Core inflation matched expectations with a 3.2% increase.
Despite potential short-term challenges, Oxley remains optimistic about gold’s long-term prospects. He notes that as monetary easing cycles progress over the next 12-18 months, the opportunity cost of holding non-yielding gold will decrease. Additionally, a predicted weakening of the U.S. dollar in 2025 could boost demand and prices outside the U.S. Central banks, particularly the People’s Bank of China, are also expected to continue increasing their gold reserves.
