Editor's note: As the Year of the Snake approaches, gold products are once again entering into a peak sales season. However, in recent times, international gold prices have continued to rise, driving up the prices of gold ornaments as well. Just before the Spring Festival, we visited some brand gold shops in Hong Kong to hear what consumers think about the rising gold prices.
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. As the Year of the Snake approaches, gold products are once again entering into a peak sales season. However, in recent times, international gold prices have continued to rise, driving up the prices of gold ornaments as well. Just before the Spring Festival, we visited some brand gold shops in Hong Kong to hear what consumers think about the rising gold prices.
We know that international gold prices soared in 2024, rising by about 27% throughout the year. At the same time, since the beginning of 2025, the demand for international gold investment remains strong. With the influence of factors such as Trump returning to the White House, the Fed's interest rate cuts, and geopolitical issues, what will be the future trend of gold prices? Will they drop as some consumers are expecting?
To discuss these topics, we have invited Jing Chuan, member of the Research and Development Committee of the China Futures Association and Chief Economist at East Asia Futures, along with Li Xinyue, Senior Macroeconomic Analyst at Shenwan Hongyuan. Welcome, everyone!
【Anchor】In 2024, gold prices experienced significant increases, reaching over 30 new highs. Mr. Jing, what do you believe are the main driving factors behind this upward trend?
In the past year, gold has consistently reached historical highs due to strong buyer interests. Firstly, the geopolitical tensions are a major driving force for gold. We see the instability in various regions globally, such as the ongoing Russia-Ukraine conflict, the Israeli-Palestinian clashes, the Red Sea crisis, and the stage of tensions in Northeast Asia, all of which have fueled a rise in risk aversion. This demand for safe-haven assets has led the trend of buying macro assets, thus becoming a key driver for gold's rise in 2024.
The second driving force comes from global central banks' gold purchases. High debt and leverage have led to a decline in the credibility of global fiat currency systems. The diversification of global settlement and payment currencies, with major currencies and digital assets like Bitcoin and stablecoins playing different roles in cross-border payments. The dollar's role in global payments is decreasing, and the activation of payment systems among BRICS nations continues to motivate central banks to increase their gold reserves. From January to November 2024, the global central bank's gold purchase data shows that these activities have been active and sustained, providing strong support for gold prices.
The third factor is adjustments in monetary policies. Central banks around the world joined the interest rate cut cycle in 2024. Loose monetary policies reduce the opportunity cost of holding non-yielding gold assets, increasing gold's attractiveness. Additionally, renewed inflation expectations have further driven up gold prices. As global central banks implemented loose monetary policies, the market's expectations for re-inflation in the U.S. have strengthened, attracting purchases of gold as a hedge against inflation.
Overall, in 2024, the price of gold and other precious metals continues to reach new highs under the influence of multiple driving forces.
【Anchor】The COMEX gold prices surged above $2,800 per ounce at the end of October 2024, with a cumulative annual increase of over 27%. Since 2025, COMEX gold prices have increased by nearly 5%. Mr. Li, how do you see the internal logic behind the continuous rise in gold prices?
Firstly, regarding central banks, the total gold purchases by central banks in the first three quarters of 2024 reached 690 tons, with an estimated annual total of around 1,000 tons. This global central bank purchasing trend, contrasting with 2022 and 2023, has significantly accelerated over the past three years, playing a crucial role in pushing gold prices higher, and 2024 is no exception. The rhythm of these central bank purchases has also varied across the three quarters, with a notable surge in the first quarter driving up gold prices significantly between February and April.
The second wave of demand came primarily from European and American investors, who had been marginally reducing their gold holdings in the first half of the year. It wasn't until the third quarter that demand surged, coinciding with a rapid decline in ten-year U.S. Treasury yields, which stimulated investment demand from Europe and the U.S. This demand supported a rapid rise in gold prices from the second to third quarters, resonating with further expressions of Chinese investment demand during that same period. In the third quarter, especially between June and August, when the A-share market was relatively weak, more allocation-type funds flowed into the gold market. This expression of Chinese investment demand resonated with the expressions of investment demand from Europe and the U.S., leading to a rapid surge in gold prices from June to October.
【Anchor】Following Trump's election, his "America First" policy has led to a decline in gold prices since November. However, many investment banks remain optimistic about future trends. UBS forecasts that by the end of 2025, international gold prices will rise to $2,900 per ounce. Mr. Li, how do you predict the trend of gold prices in 2025, and what are the reasons behind it?
In assessing the trend of gold prices for 2025, we first want to share our basic research framework. We believe there are three marginal price setters for gold: central banks, Chinese investment demand, and European and American investment demand. As for central banks, our analysis over the past two to three years indicates that their gold purchasing rhythm generally contrasts with the maturity schedule of long-term U.S. Treasury bonds. This means that if the maturity schedule of long-term U.S. Treasuries rises in 2025, it likely implies that central bank purchases will at least maintain or even slightly accelerate. Thus, this factor is expected to support gold prices in 2025.
The second factor is Chinese investment demand. Over the past couple of years, the flow of funds into gold ETFs in China has shown a significant switch in relation to market expectations. When market expectations are positive, funds tend to flow out of gold ETFs into equity markets. Conversely, when market expectations weaken, funds re-enter the gold market.
In 2025, under a backdrop of intensified forex shocks and concerns over the domestic market, we anticipate increased allocation of funds into gold, providing additional support for gold prices.
The third factor is European and American investment demand, which tends to follow traditional frameworks based on real interest rates. In 2025, with the Federal Reserve likely to cut interest rates, there may be supply pressure on US Treasury bonds, keeping the yield of 10-year US Treasury bonds relatively high, this could suppress further expressions of European and American investment demand. Overall, we believe that gold prices in 2025 will continue to see some upward adjustment.
【Anchor】Data shows that the gold market is currently experiencing its best annual start since 2023 and is expected to achieve the strongest monthly performance since September of last year. Does January's strong start indicate that gold will have an important year ahead? Mr. Jing, how do you view the future trend of gold prices?
We believe that gold will continue to reach new highs in 2025. However, it is important to note that since the re-inflation trade has already emerged in 2024, if inflation expectations arise in 2025, this could lead to mid-term adjustments after reaching new highs. Investors should grasp the market rhythm.
【Anchor】In the Trump 2.0 era, Mr. Jing, how do you see the relationship between gold prices and the dollar? Some argue that gold has now developed an independent trend. What are your thoughts on this?
In the Trump 2.0 era, we believe that the negative correlation between gold and the dollar may weaken. However, in the long term, Trump's fiscal policies may increase the U.S. fiscal deficit and drive up inflation, which could undermine the dollar's credibility. This would provide a basis for more global investors to hold gold and other hard currencies, which would be favorable for gold prices in the long run.
Currently, we see that gold has emerged as having a certain degree of independent trend. On one hand, the traditional correlations between gold, the dollar, and Treasury yields are beginning to weaken, indicating a shift in gold pricing mechanisms from being solely cyclical to incorporating diverse risk-hedging functions. On the other hand, geopolitical factors, central bank purchasing behaviors, and inflation expectations collectively contribute to gold no longer relying solely on dollar trends, providing more independent support for its price.
【Anchor】Since 2024, the correlation between gold prices and the U.S. dollar index has reached 43.88%, showing a trend of synchronous resonance. However, in the investment realm, there exists a competitive relationship between the dollar and gold. Mr. Li, with Trump returning to the White House, do you think gold and the dollar will decouple?
Has there been a complete decoupling between gold prices and the dollar? Before 2022, we observed that investment demand from Europe and the U.S., or global investment demand, resonated with gold pricing. At that time, investment demand was the core pricing force for gold, primarily focusing on three aspects: first, the inflationary nature of gold, as it is a tangible asset with anti-inflation properties; second, opportunity cost, since gold is a non-yielding asset, compared to ten-year Treasury yields, etc., which represents its opportunity cost; and third, hedging factors. If we consider TIPS (Treasury Inflation-Protected Securities) reflecting inflation expectations and ten-year Treasury yields as opportunity costs, the difference gives us the real yield of ten-year Treasuries. This is why the framework of real yields has been effective for so long in explaining gold prices.
Since 2022, this framework has begun to fail, primarily due to the emergence of two types of marginal pricing powers: first, the accelerating central bank gold purchase, and second, Chinese investment demand. In the past, Chinese investment demand for gold was aligned with that of Europe and the U.S. However, since 2023, while European and American investment demand has been decreasing its gold holdings, China has accelerated its investments due to a certain degree of asset scarcity in the domestic market, leading to increased allocation of funds into the gold market. This shift explains why we see the traditional framework's relative failure since 2022, as new investors outside the traditional framework have entered. Looking ahead, we believe these three types of price setters will continue to dominate gold pricing. Although the traditional framework of real yields has not completely failed, it primarily applies to European and American investment demand, meaning that the explanatory power of this single factor for gold prices will gradually weaken.
【Anchor】The global central bank gold purchases from January to November 2024 showed that central bank gold-buying activities remained active. Mr. Li, do you believe central banks will continue to increase their gold holdings in 2025? What considerations lie behind this behavior?
We believe that central banks will continue to increase their gold purchases in 2025. However, this increase may diverge from popular market views based on the framework of actual deficit rates. Many believe that due to rising deficit rates, global central banks may perceive a certain overextension of the dollar's credibility, leading to accelerated gold purchases. However, our analysis suggests that the accelerated gold purchases over the past few years have not been a universal behavior amongst central banks, but rather driven by a few, such as Russia, acting on security considerations after sanctions in 2022. We anticipate that this acceleration will continue, as it has historically contrasted with the maturity schedule of long-term U.S. Treasuries, which is expected to accelerate slightly from 2022 to 2024. Thus, we predict that global central banks will continue to increase their gold holdings in 2025.
【Anchor】According to Goldman Sachs' latest report, in November, central banks and institutions in the London over-the-counter (OTC) gold market bought 117 tons, significantly higher than the previously estimated 46 tons. What are your thoughts on this, Mr. Jing?
We believe that central bank gold purchases will continue in 2025. Many central banks are forecasting continued activity in global gold purchases. The World Gold Council's survey indicates that nearly 60% of central banks in developed economies expect the share of gold in global reserves to grow in the next five years, surpassing last year's expectation of 38%. Additionally, the increasing holdings in gold ETFs also show that the market is leaning towards using gold as a hedge, which is favorable for rising gold prices.
Moreover, central bank gold purchases help mitigate some of the negative impacts of a strong dollar on gold prices. Currently, the positive buying by global central banks remains unchanged, and the People's Bank of China has resumed gold purchases after a six-month pause, which will provide ongoing support for gold prices in 2025. At the same time, renewed inflation expectations will also continue to support gold prices.
【Anchor】Looking at the long term, Mr. Jing, how do you view the investment value and potential of the gold market? Is gold still one of the top choices for investors seeking safety and value preservation?
We see that the Trump administration's fiscal policies are likely to increase the fiscal deficit and drive inflation, which will lower the relative cost of purchasing gold compared to the dollar or Treasuries. Additionally, the ongoing global debt levels are leading investors to turn towards safe assets like gold. Geopolitical risks also persist. Although Trump's administration may promote peace talks between Russia and Ukraine and reduce geopolitical tensions, the overall geopolitical risk landscape remains. Conflicts in the Middle East and potential new flashpoints in Northeast Asia will continue to make gold an attractive safe-haven asset in 2025
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. Here comes the Spring Festival! On this festive occasion, DOTDOTNews wishes everyone a joyous reunion with family, good health, successful career, and abundant wealth. I'm Yunfei Zhang, Wishing you a Happy Chinese New Year, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Jerry Wang | Translate: Kato Ip | Proofread: Chris Liu
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