“We expect central banks to stay in the driving seat and gold ETF investors to join the fray. Jewellery demand will remain under pressure and we may see further growth in recycling. Mine supply is expected to remain robust” World Gold Council (WGC)
The macroeconomic backdrop we laid out in our Gold Outlook 2025 is broadly in line with market expectations with some changes, partly reflected by less aggressive rate cuts by central banks. In line with consensus economic estimates, the following developments are likely in the four major gold regions a soft landing in the US with intermittent risks of overheating.
Interest rates recede slowly but it’s a bumpy ride. The US dollar on course to decline,
1: European growth remains weak but benefits from both lower inflation and rates in the latter half of the year; any additional pickup in Chinese growth can provide a welcome boost to exports.
2: China continues to battle weak domestic activity but could improve on continued stimulus measures that have seen a nascent recovery in retail and property sales.
3: India sees slowest growth in four years – albeit higher than most regions – accompanied by a welcome decline in interest rates and inflation.
Investment
WGC suggest, we see tailwinds for gold ETF, OTC and futures-based investment stemming from generally lower interest rates, richly valued equities, a softer US dollar and geopolitical risk mostly expressed though trade and economic uncertainty.
We expect the trajectory for rates in the US will be down but bumpy, given the Trump administration’s all-out pro-growth agenda stoking temporary inflationary fires in a late business cycle. This uncertainty is likely to keep term premia intact and the bond-equity correlation elevated – a positive for gold.
In addition, there’s potential for US dollar weakness stemming from a combination of ‘extreme’ overvaluation and a push for both lower rates and a more competitive dollar by the administration, as well as a likely narrowing in German Bund-US Treasury spreads as German elections push local growth policies to the fore.
Regionally, gold ETF investment in the US has the potential to bring in substantial flows overall, even if we see transient periods of outflows. In Europe, the ECB is expected to cut rates by 1% during 2025. This could be enough to get some European ETF investors back in the fold. However, it might be a slow return given that real rates remain attractively positive at close to 1%, one factor that anecdotally drove investors out of European ETFs in 2023.
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