3 Factors That Could Drive the Gold Price Up in 2025

Goldman Sachs has set a bullish price target for gold, predicting it will reach $3,000 per ounce by the end of 2025 – an 11% increase from current levels.

Despite a strengthening US dollar, the investment bank foresees a perfect storm of economic and geopolitical factors that could fuel a sustained rally. Here are the three primary drivers Goldman Sachs believes will push gold prices to new heights.

1) Federal Reserve Policy Action

Impact of Lower Interest Rates

Goldman Sachs expects the Federal Reserve to slash interest rates by over 100 basis points in 2025, targeting a range of 3.25%-3.5%. Lower rates make non-yielding assets like gold more attractive by reducing the opportunity cost of holding the precious metal in the financial market.

Historical Trends with Rate Cuts

Past trends show that when the Fed cuts rates, gold-backed ETFs see increased demand. Historically, ETF inflows strengthen gold prices, and Goldman expects this dynamic to repeat as borrowing costs decrease.

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Potential Risks

While the outlook is positive, Goldman cautions that smaller-than-expected rate cuts could limit gold’s rise. For instance, if the Fed reduces rates by only 25 basis points, gold might peak at $2,890 per ounce instead.

2) Central Bank Gold Buying

Central Bank Diversification

Foreign central banks have been on a gold-buying spree, diversifying away from the US dollar in response to geopolitical tensions and sanctions on countries like Russia.

This trend is expected to continue as central banks seek safer, dollar-independent reserves

Key Players in Gold Buying

China has emerged as a critical player, with large dollar reserves and a long-term strategy of increasing gold holdings in the global economy. Goldman forecasts that foreign banks will purchase 30 tons of gold monthly through 2025, well above pre-sanctions levels in the financial system.

Long-Term Implications

Continued central bank purchases could reshape global reserve strategies. This may reduce reliance on the US dollar. As gold reserves grow, countries may stabilise their currencies and strengthen their economic positions.

3) Geopolitical and Economic Uncertainty

Safe-Haven Appeal

Gold’s safe-haven status comes into play during times of geopolitical and economic instability. Investors often turn to gold as a hedge against potential crises, from military conflicts to economic sanctions.

Trade Tariffs and Currency Strength

The US dollar’s recent strength has come from trade tariffs and international tensions rather than economic growth. In such cases, gold and the dollar can rise together, defying historical norms.

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Market Volatility

During stock market turbulence, gold becomes an essential asset for portfolio diversification. Its ability to maintain value during volatile market conditions in global economic turmoil supports its long-term appeal. An example, of this can be seen in the Covid-19 pandemic where the market price of gold rose dramatically due to rising uncertainty.

Key Takeaways

Gold’s path to $3,000 an ounce is supported by a unique confluence of monetary policy shifts, central bank buying, and global uncertainty.

As the Federal Reserve pivots toward lower interest rates, gold’s appeal as a non-yielding asset strengthens.

Simultaneously, central banks, a main financial institution, are diversifying their reserves by purchasing gold, reflecting its enduring value in global finance.

Lastly, persistent geopolitical risks and economic instability further enhance gold’s safe-haven status.

While challenges remain, these powerful drivers create a compelling outlook for sustained gold price growth through 2025.