Prediction: Here's Where the Gold Price is Headed in 2025

The price of gold and has been volatile recently.

Since August this year, the gold price has moved up from close to Rs 70,300 per 10 gm to 81,800 per 10 gm in October.

This move in less than 3 months was in line with global trends. Internationally, the gold price, measured in US dollars, have been on a steady rise since early 2024.

This has been a great time to be a gold investor.

However, the price of the yellow metal has taken a hit recently. In just a few days, the gold price is down about 5%.

But what about 2025 and beyond? If you are buying gold now then you would be interested in the future price trajectory.

So, let's look at the top factors driving the price of gold.

#1 Inflation and Interest Rates

Gold has historically acted as hedges against inflation. Gold's record in this regard is very good going back 3,000 years.

Inflation has remained sticky all over the world. Although the rate of inflation has declined since it peaked in 2022, it still hasn't gone back to pre-covid levels. This has provided support to the gold prices over the last few years.

Central banks around the world have raised interest rates to fight inflation. Now, they seem satisfied that inflation will eventually come under control. Market forces i.e. reduction in demand, will bring down prices to acceptable levels.

Thus, interest rates are not going to remain high for much longer. Also, central banks are not comfortable with the idea of keeping rates high for so long that it becomes a trigger for a recession.

Falling interest rates are associated with a rising price of gold. Thus, if interest rates have peaked, and are on the way down, then gold has some room to go higher.

Donals Trump's election has raised the prospects of higher inflation due to trade wars. Thus, there is a possibility of interest rates not falling as much as the market expected.

Investors will have to keep an eye out for it.

#2 Recession Fears

Much of the developed world is barely growing. Some are in a recession or close to it.

Gold is seen as a crisis hedge. If there are fears of a recession then investors have in the past, diverted funds to hard assets like precious metals.

But the US economy has held out quite strongly so far. Thus, this reason hasn't contributed too much to the up move in gold prices in 2024.

However, there are concerns in the US that the economy is slowing down. If the 2024 economic slowdown is serious enough, the US could follow the other developed nations into a recession.

Right now, that possibility appears low due to the strong labour market in the US but many other economic indicators are not so positive.

Much will depend on how Donald Trump's economic policies plays out. If the US economy receives a boost from tax cuts and deregulation as Trump has promised, then gold might not do too well in 2025.

Gold is the ultimate assets to buy in times of fear and uncertainty. Media reports suggest central banks have increased their gold purchases recently. There has been strong demand for gold from individuals in wealthy nations, especially the Middle East.

The smart money clearly wants to hedge their bets and prepare in advance for a crisis. The tensions in the Middle East have only added to the concerns.

Thus, higher demand due to fears of bad economic times ahead could become an important reason for the sustained rise in gold prices.

#3 Strong Dollar

Donald Trump's victory in the US election has given a boost to the dollar, which has put some pressure on the gold price over the last few days.

This is because the markets believe his policies will be bullish for the dollar. If the US economy revives, then money will flow back into the US companies and assets.

Also, if inflation were to go up due to trade wars, the US Fed won't cut interest rates too much. Lower interest rates are positive for gold. If the downward trend in interest rates is not going to last long, that is negative for gold.

However, it's too early to say how Trump's policies will play out. The short term weakness in gold may not last beyond a point. It will come down to how long the recent strength of the dollar lasts.

#4 Emotional Reasons

Finally, there is a mostly under-appreciated reason for the rise in the gold price.

Gold is an emotional asset, perhaps even more than stocks. Whenever the prices of gold rises, everyone starts to talk about it.

These conversations create a sense of desire to buy more. Those who didn't buy in earlier rallies feel a fear of missing out (FOMO).

They hear stories of people who bought gold at Rs 45,000 and are now sitting on solid profits. This makes them feel they have missed out on a great opportunity.

This feeling of FOMO when the prices of gold is surging, is a strong motivation to buy more, especially in ETF form, as it enables quick buying and selling. We have already seen this happening as ETFs have become very popular with retail investors.

However, the reverse is also true. When the price falls, as it has done recently, FOMO is replaced by plain old fear. Also, investors on the sidelines delay their purchases hoping for even lower prices.

This can act as a damper on gold prices in the short term. But it will not play a big role in the long term price trend.

Conclusion

At Equitymaster, we recommend holding at least 5-10% of one's total investments in gold.

It makes sense to hold some gold in one's long-term portfolio, but it doesn't make sense to speculate on gold's short term price movements.

Also, while considering an investment in gold, have a time horizon well beyond 2025. Just because prices have gone up or down recently, doesn't automatically make gold a good or bad investment.

Do your due diligence before buying gold in any form.

By the way, you can also check out the video version of this editorial on Equitymaster's YouTube channel.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...