Golden year: prices for the precious metal will break all records
2024 was a great year for gold as an asset - it added about 30%. Demand for the precious metal increased for most items, but the key ones were the ongoing purchases by central banks, which set many records. Prices were affected by many factors at the same time. Not the least of which was frustration with fiat currencies due to the proliferation of sanctions and the US dollar becoming an economic weapon. Apparently, in 2025 little will change and the cost of an ounce can reach $3 thousand, experts believe. Details - in the material "Izvestia".
The bet helped
In early 2024, the price of gold, although it was quite high by historical standards (around $2 thousand), stagnated for several years since the pandemic. But over the course of the year, there was a rapid and violent rise. In 12 months the precious metal grew by almost a third, and in some periods it crossed the mark of $2.7 thousand per ounce. The growth was relatively stable throughout the year, although the biggest surge occurred in the spring.
What happened? Undoubtedly, the reduction of the Fed's prime rate had a positive impact. The American financial regulator with its easing of monetary policy pleased almost all sectors of financial markets (which is perfectly visible in stock prices). Gold was not an exception. Separately, however, it is worth noting that it has endured several years of high interest rate environment, which previously led to severe price declines - but this was not the case in the past few years.
It's not just about rates. Demand for physical gold has increased dramatically. Q1 saw the best performance since 2016, and Q2 and Q3 set all-time demand highs. Data for the last quarter of the year has not yet been released, but while there is a chance of some drawdown, demand is likely to be strong relative to the average of recent years.
What is happening is hardly surprising. Russia's international reserves, which ended up abroad in 2024, have never been unfrozen. Moreover, the G7 countries agreed to use the proceeds from them in favor of Ukraine. At the same time, multiple new sanctions were imposed against Russia (and a number of other countries), but the main problem is not even direct sanctions, but secondary sanctions that affect the vast majority of states.
All this does not increase confidence in the dollar and especially the euro. States are looking for alternatives to reserves in dollars. At the same time, it is obvious that the creation of a full-fledged currency by, for example, BRICS looks utopian. Apart from gold, there are not many options for reliable storage of the formed reserves. As for private individuals, many of them are stressed by the situation with fiat currencies, even those that dominate the world markets. The combination of the record ratio of the US and EU (as well as Japan) government debt to their respective GDP, coupled with budget deficits of more than 5% year after year, also makes them think about the future.
If we look at individual demand categories, there was a slight slowdown in central bank purchases in 2024. Say, in Q3 they purchased 186 tons of precious metal - half as much as in the same period last year. However, we note that in general, the regulators' purchases were at a high level by historical standards (as in 2022). The dip compared to 2023 was due to last year's prohibitively high levels. This was more than offset by investment demand for gold, which jumped, for example, by 132% in the third quarter.
Gold purchases by central banks have declined due to unusually high prices. Curiously enough, for several quarters the leader in terms of investments was Poland, which, for example, bought 42 tons in the III quarter. But the People's Bank of China did not make purchases on the market for six consecutive months up to and including October. It was only in November that purchases were resumed. Again, the reason is the price: the Chinese refrained from buying because of excessive costliness, expecting that the precious metal will lose a little in value. In the end, this did not happen (the price decline in October-November was quite moderate), but bankers realized that it was pointless to wait indefinitely for quotations to decline.
The harbor remains quiet
What will change next year? Most experts believe that the existing trends will continue - gold will continue to rise in price and remain a "safe haven" for investors.
According to Elman Mehtiyev, the founder of the Kredchek service, gold is growing and will continue to grow on economic and political turbulence, which is only increasing worldwide so far.
- Central banks will increase their purchases of gold and other perpetual assets given the growing risks to their countries, especially given the risks to foreign exchange reserves in light of the rising value of cryptocurrencies," the speaker said.
Expert on the stock market "BCS Investment World" Dmitry Puchkarev believes that gold prices in 2025 may be in the neighborhood of $2.6-2.9 thousand. The key drivers of growth will be the expectations of easing interest rates of the Federal Reserve System and continued purchases of precious metals by central banks.
Ivan Efanov, an analyst at Tsifra Broker, believes that the cost of gold may reach the level of $3 thousand per ounce by the end of 2025, despite the possible strengthening of the U.S. dollar.
- Gold continues to be in demand against the backdrop of turbulence and geopolitical shake-ups, global central banks are still filling their gold reserves at a record pace, which pushes up the cost of the precious metal, - explains the expert. - In a world where fiat (paper) savings can be frozen one day, distrust of assets unsecured by gold is growing. Historically, gold also perfectly tolerates inflation, which affects not only the Russian economy.
Finam analyst Nikolay Dudchenko predicts that the growth potential is not exhausted. According to him, the risks on the external geopolitical track are still significant and it is possible that they are underestimated. Not so long ago the political regime in Syria was changed, the US continues to threaten and impose sanctions on Iran. It is now believed that Israel is preparing to strike Iran. Thus, the involvement of Iran in some capacity in a full-fledged conflict is possible, the expert believes.
- Another factor in the price growth may be an increase in the deficit in the case of lower profitability of gold mining and, as a consequence, a possible decrease in supply in the market. Accordingly, in this situation, we assume that the gold price may reach $3 thousand and even $3.3 thousand per troy ounce in 2025 if certain conditions are met. At the same time, in our alternative scenario, we also consider the option of correction," Nikolay Dudchenko added.
Gold and bitcoin
Despite significant growth, gold in recent years has been experiencing competition from its digital counterpart - bitcoin, which, like the precious metal, has a limited amount of "mining" and is considered a defense against problematic currency situations. This year it soared several times and broke the $100 thousand mark. But so far it cannot squeeze gold.
- Cryptocurrency as a reserve sounds tempting, but the asset can be used as a savings only if it is accepted everywhere and always," Elman Mehdiyev pointed out.
Nikolay Dudchenko notes that bitcoin is not a full-fledged competitor to gold, as the gold market is simply much larger:
- For example, according to the World Gold Council, this year central banks have purchased about 295 tons of gold (that's about 9.5 million troy ounces), which at the current gold price of about $2650 per troy ounce gives the amount of $25 billion. In total, banks own a little more than 36 thousand. t of gold (1.2 billion ounces) for a total value of more than $3.2 trillion.
The total number of bitcoins in circulation is 19.6 million, and a total of about 21 million bitcoins will be mined by 2140, which at the current price of about $100,000 per bitcoin gives a market capitalization of $2.1 trillion. Based on the number of bitcoins in circulation now, the capitalization is about 1.96 trillion - 1.6 times less than the size of reserves in the world's central banks.
