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Informist, Thursday, Dec. 26, 2024

 

By J. Navya Sruthi

 

MUMBAI – Analysts and brokerage firms continue to be bullish on gold in 2025 despite it hitting multiple all-time highs in 2024. The reasons for the bull run will remain the same--demand from central banks, moves towards de-dollarisation, geopolitical tensions, and lower interest rates. In line with gold, silver is also likely to remain firm in 2025 due to rising demand for renewable energy.

 

Both gold and silver hit multiple highs in 2024 on the COMEX and the Multi Commodity Exchange of India. This was despite the significant correction in gold and silver prices on the domestic bourse due to the Indian government's decision in the Union Budget for 2024-25 (Apr-Mar) in July to cut the import duty. On Jul. 23, the government announced a reduction in the customs duty on gold and silver to 6%, including 5?sic customs duty, down from 10?rlier, and 1% agriculture infrastructure and development cess, down from 5?rlier.

 

However, in October, gold prices hit an all-time high of INR 80,282 per 10 gm on the domestic bourse and have given returns of nearly 21% so far. On the COMEX, gold gave a year-to-date return of 26% in October and hit a record high of $2,826.3 per ounce. 

 

In the case of silver, prices did not reach the historical high on the COMEX. However, on the MCX, prices breached the INR 100,000-per-kg level. In October, prices hit a high of $35.21 per ounce and INR 100,081 per kg on the COMEX and MCX, respectively. The year-to-date return was 25% and 20% on international and domestic bourses, respectively.  

 

On Tuesday, the most active February gold contract closed at $2,635.5 per ounce and INR 76,243 per 10 gm on the COMEX and MCX, respectively. The most active March silver contract closed at $30.28 per ounce on the COMEX and the same month's contract on the MCX closed at INR 89,340 per kg.

 

Gold has been the best performer amongst major asset classes this year, mainly supported by rate cut optimism, strong central bank buying, robust Asian purchases, and safe-haven demand amid heightened geopolitical risks, Ewa Manthey, commodity strategist at ING Think, said. Uncertainty ahead of the US election in November also supported gold's record-breaking rally this year, Manthey added.

RALLY CONTINUES

Demand from central banks and private investors is likely to continue in 2025, Shripal Shah, managing director and chief executive officer, Kotak Securities, said. Shah said the rising dollar is unlikely to arrest the increase in gold prices.

 

Ongoing geopolitical tensions and de-dollarisation will also support gold prices. 'De-dollarisation' of global foreign exchange reserves refers to reducing dependence on the US dollar for international trade and reserves.

 

The brokerage firm has set the target for gold at $3,100-$3,150 per ounce on the COMEX by the end of 2025 and a target of INR 90,000 per 10 gm on the MCX. In line with gold, the brokerage sees silver prices remaining firm in 2025, too, due to rising demand for renewable energy, which uses silver in the technology necessary for the production process. The brokerage firm has set the 2025 year-end target for silver on the MCX at INR 110,000 per kg and on the COMEX at $37.50 per ounce.

 

Ajay Kedia, managing director of Kedia Advisory, set the target for gold prices on the MCX at INR 85,000 per 10 gm by the end of 2025, and sees the support level at INR 64,600 per 10 gm and resistance at INR 87,400 per 10 gm. Demand from exchange-traded funds and diversification of forex reserves by central banks are likely to keep gold prices elevated in the first half of the next year. 

 

In the case of silver, Kedia has set a target of INR 130,000 per kg, and sees support at INR 74,500 per kg and resistance at INR 158,000 per kg. Silver prices are likely to be more volatile. There is support from base metals and renewable energy demand, he added.

 

"While gold retains its status as a safe-haven asset, silver's industrial applications and supply-demand dynamics position it as a critical commodity for the green economy. As the world continues its transition toward renewable energy and technological modernisation, silver is poised to shine even brighter in the years to come," Kotak Securities said in its commodities' yearly outlook.

 

Commodity strategist Manthey said inflows are likely to continue in gold ETFs in 2025 as the US Federal Reserve continues to cut rates. Global gold ETFs have seen inflows for six months in a row, supported by North American and Asian flows, the strategist said. Investor holdings in gold ETFs generally rise when gold prices gain and vice-versa.

 

GLOBAL ECONOMY

Buying by global central banks is likely to continue next year, with demand crossing 500 tonnes, which will have a net positive effect on the performance of the yellow metal, the World Gold Council said in its Gold Outlook 2025. However, a deceleration below that level could put additional pressure on gold, the report said. "Central bank buying is policy-driven and, thus, difficult to forecast, but our surveys and analysis suggest that the current trend will remain in place," the WGC report said.

 

Meanwhile, market participants believe the US Federal Reserve will slow its pace of rate cuts in 2025 after cutting rates by 25 basis points earlier this month, which has put some pressure on gold prices. The Summary of Economic Projections, released along with the Federal Open Market Committee's statement, showed the median Federal Reserve official expects another 50 bps of rate cuts in 2025, against the previous guidance of 100 bps.

 

However, the fact that the US Fed and other central banks have started with their rate cut cycles is likely to support gold prices, Kedia said. Lower interest would make non-yielding assets such as gold attractive for investors and also make dollar-denominated commodities such as silver cheaper, aiding the demand for bullion metals. 

 

Further, West Asia has become a focal point for rising geopolitical tensions, particularly with the ongoing conflict between Israel and Hamas, and broader instability in the region, Motilal Oswal Financial Services said in a report. "These geopolitical crises have led to a heightened demand for gold and silver, as both metals are considered safe-haven assets in times of uncertainty."

 

Evolving political scenarios, including significant elections and conflicts in West Asia, are likely to sustain gold's safe-haven demand, Kotak Securities said. "Gold's role as a hedge against inflation, political instability, and economic uncertainty positions it well for the coming year."

 

CHINA STIMULUS

Global central banks continued to add gold to their reserves in 2024, with buying picking up speed in early October, the World Gold Council said in its Gold Outlook 2025. Central banks across the globe added 694 tonnes as of October, the WGC data showed.

 

Although central bank demand will likely end the year below previous records, it has remained strong and positively contributed to the tune of 7-10%, the WGC report said. In 2023, global central banks added 1,049 tonnes of gold to reserves.

 

However, the People's Bank of China didn't add gold to its reserves for the sixth straight month in October. Bullion held by the Chinese central bank was unchanged at 72.8 million troy ounces at the end of October, ING Think said, citing official data.

 

"China's central bank ended an 18-month buying spree in May that had driven gold prices to all-time highs. Still, the central bank's year-to-date total remains strong, primarily boosted by the record-breaking start to the year, with third-quarter net purchases of 186 tonnes lifting it to 694 tonnes--below the 2023 record, but in line with the same period of 2022," ING Think's Manthey said.

 

China, the largest consumer and importer of gold and base metals such as copper, is planning to issue special treasury bonds next year worth 3 trillion yuan ($411 billion) to support economic growth, Reuters reported. The plan for sovereign debt issuance in 2025 indicates a sharp increase from this year's 1 trillion yuan and comes as Beijing moves to soften the blow from an expected increase in US tariffs on Chinese imports when President-elect Donald Trump assumes office in January, the report said. If the stimulus measures work in favour of China, they will support economic growth and recovery of the economy, and also aid metal prices, especially industrial metals, including silver, analysts said. 

 

ADVERSE FACTORS

In its Market Outlook, Kotak Securities said gold may face headwinds in 2025 as Trump's tariffs and tax cuts are seen as inflationary and, hence, may prompt the Federal Reserve to take a measured approach regarding interest rate cuts. "Lower tax rates (in the US) would also increase government debt, while tariffs may lead to supply disruptions and, hence, higher inflation, which would limit the pace of the Federal Reserve's interest rates next year," it said.

 

The dollar index, which has been volatile throughout 2024, further underscores the complexity of the current market conditions, Motilal Oswal said in its report. "Despite the Fed's rate cuts, the dollar index remained resilient, recovering quickly after falling to lower levels. This resilience was driven by increasing demand for the dollar as a safe-haven currency during times of crisis, particularly amid geopolitical unrest," it added.

 

Ongoing geopolitical tensions, including the conflict in West Asia, have reinforced the dollar's appeal, creating a tug-of-war between the strength of the US currency and the demand for precious metals, Motilal Oswal said in its report. "As the dollar remains volatile, it adds another layer of uncertainty to the outlook for gold and silver prices."  End

 

Edited by Namrata Rao

 

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