Gold prices, which surged to record levels in the first half of the year, were initially driven by strong demand from Asian investors, particularly in China. Now, an international bank anticipates that Western investors will take over and push gold prices even higher.
In a recent update, Bernard Dahdah, Precious Metals Analyst at Natixis, projected that gold will average around $2,600 per ounce in 2025. Dahdah noted that while the Chinese market has cooled down recently, as evidenced by Shanghai gold premiums trading at a discount for most of August, Western investors are starting to drive demand. This is reflected in the recent uptick in physically-backed gold ETFs, which had experienced significant outflows for nearly a year.
Dahdah attributes his optimistic forecast to a return to traditional market fundamentals, including a weaker U.S. dollar and declining bond yields. However, he cautioned that interest rates and yields might not decrease substantially through the rest of 2024.
Recent employment data showed a decline in job openings for July, which led to a sharp increase in market expectations for a 50 basis point rate cut. According to the CME FedWatch Tool, there is now a 45% chance of aggressive easing later this month.
Despite this, Natixis anticipates a more gradual reduction in interest rates. “We diverge from the consensus by expecting the Fed to avoid rapid rate cuts, due to persistent inflation concerns,” Dahdah explained. “While the job market is slowing, it is stabilizing at a level consistent with target inflation, not exhibiting outright weakness. This will likely result in incremental policy easing, with a 25 basis point cut in September and another in December, totaling 50 basis points for 2024.”
Dahdah further noted that Natixis expects interest rates to decline to 3.25% by 2025, which should provide continued support for gold prices. “For the rest of the year, we anticipate prices will remain near current levels, as most of this year’s rate cuts are already priced in. However, we foresee a potential acceleration in price increases in the latter half of 2025,” he added.
