Good news about gold

Gold has performed incredibly well over the past few years, and this rally is set to continue in 2025. However, higher interest rates could reverse the precious metal’s fortunes. 

Since 2019, the price of the precious metal has risen 85% as demand has spiked. According to the World Gold Council, demand for gold hit a record high of $100 billion in the third quarter of 2024. 

The dollar price of gold soared by 27.2% in 2024, and over a three-year period, gold is up 43.5%. 

This is a far cry from the pre-pandemic trends when investors had little interest in gold as its performance lagged that of other asset classes.

The World Gold Council attributes this growth to central bank and investor buying, which have more than offset a notable deceleration in consumer demand. 

Gold is often referred to as a ‘safe-haven’ asset, owing to its intrinsic value, historical role as a store of wealth, and universal acceptance. 

It acts as a hedge against inflation and currency depreciation, often appreciating when fiat currencies lose purchasing power. 

In addition, gold’s low correlation with other asset classes makes it a useful diversification tool, especially during economic crises or market volatility. 

With a finite supply and no default risk, gold provides stability and liquidity, making it a trusted refuge for investors and central banks during times of uncertainty or geopolitical tensions.

This is largely why gold performed so well in 2024, which the UNDP has called the “biggest election year in human history.”

This is because half of the world’s population – some 3.7 billion people – had the opportunity to go to the polls in over 70 countries.

The Pew Research Center explained that 2024 also turned out to be a difficult year for incumbents and traditional political parties. 

“Rattled by rising prices, divided over cultural issues and angry at the political status quo, voters in many countries sent a message of frustration,” the organisation said.

South Africa was not immune to this – 2024 marked the first year in the country’s democratic history that the ANC did not attain a majority.

The US, UK, Botswana, South Korea, Ghana, Panama, Portugal and Uruguay also experienced major political disruptions last year.

While this led to global uncertainty and significant market volatility for equities, the gold price soared.

With fewer elections this year and seemingly more political certainty, many may believe that the rally on gold will end.

However, Momentum Investments Group chief economist Sanisha Packirisamy said this may not necessarily be the case.

Uncertainty will remain high for quite some time, as all the countries that voted out their incumbents in 2024 now find themselves with new leaders, likely new policies, and, therefore, significant uncertainty for what the future holds.

“In such a geopolitically uncertain environment globally, gold is expected to maintain its strategic importance in the central bank and investment portfolios as a natural portfolio diversifier and risk-mitigating asset,” Packirisamy said.

The US election results, which will see Donald Trump return to the White House, are set to be a major theme this year.

The US President-elect has already made statements related to stricter tariffs and his “America First” outlook that could significantly upset global trade.

Packirisamy explained that if Trump went through with these policies, the gold price would likely benefit.

“EM central banks that are likely to bear the brunt of US protectionist policies during the Trump regime can be expected to continue diversifying their reserves away from US dollar assets by increasing their still-low gold exposure,” she said.

While the stage is set for gold to continue its rally in 2025, the outlook is not without risks.

The World Gold Council has warned that a reversal in monetary policy, leading to higher interest rates, could, in turn, see a reversal in the price of gold.

Markets are pricing in one interest rate cut for the US in 2025, but many central banks around the world – including South Africa and the US – are expected to maintain a “higher or longer” approach to interest rates this year.