Gold Glitters Through 2024: Yellow Metal Delivers Returns Of 27%, Beats Nifty; Outlook For 2025?

As 2024 comes to a close, gold has established itself as the shining star of the financial markets, delivering nearly 27% returns for the year. This performance outshines major equity indices such as the Nifty 50 and the S&P 500, marking its strongest year since 2010. The rally was boosted by geopolitical uncertainty and central bank demand.

A Golden Year

Gold's rally this year saw prices hit an all-time high of $2,788.54 per ounce on October 30. For the first time in history, third-quarter bullion demand surpassed $100 billion, driven by a confluence of factors. Geopolitical risks, including the Israel-Iran proxy conflict, the ongoing war in Ukraine, and the collapse of Bashar al-Assad's regime in Syria, increased demand for gold.

Additionally, central banks played a crucial role, continuing their nearly 15-year trend of net bullion purchases that began in the second quarter of 2009. Though their buying pace moderated compared to the 2022-2023 period, central banks remained a key pillar of support for gold prices.

Economic conditions also fueled the gold rally. A series of rate cuts by the US Federal Reserve lowered the opportunity cost of holding gold, making it more attractive to investors seeking inflation hedges. This trend, coupled with inflationary pressures and a weaker dollar in parts of the year, amplified the metal's allure.

Geopolitical & Economic Tailwinds

Geopolitical uncertainty was a dominant theme throughout the year, underpinning gold's meteoric rise. The Middle Eastern tensions, compounded by broader global unrest, reinforced gold's status as a hedge against uncertainty.

Economically, inflationary fears stoked by the looming spectre of higher tariffs on American imports, as indicated by President-elect Donald Trump, provided additional impetus. Federal Reserve Chair Jerome Powell's cautious stance on monetary easing, including hints at only two rate cuts in 2025, fuelled further rally.

India's trade deficit also played a role, ballooning to $37.8 billion in November, fueled by a four-fold surge in gold imports. This reflected the cultural and investment demand for gold in one of the world's largest markets for the precious metal.

Outlook For 2025

The outlook for gold in 2025 remains optimistic, with market analysts projecting continued strength. Zain Vawda of MarketPulse predicts a base case scenario with gold reaching $2,800 per ounce, contingent on geopolitical developments. Major financial institutions such as UBS, Citi, Goldman Sachs, and JPMorgan are even more bullish, pegging targets as high as $3,000 per ounce by December 2025.

However, certain challenges could temper gold's momentum. A strengthening US dollar, currently near two-year highs, could dampen the metal's appeal. Furthermore, competition from equities and real estate markets, particularly in Asia, may shift investor preferences.

India & China

In Asia, gold demand dynamics present a mixed picture. India's consumer demand appears stable, buoyed by robust economic growth exceeding 6.5%. Unlike other US trading partners, India's smaller trade deficit with the US positions it better to weather potential tariff wars under President-elect Trump's administration.

China's demand, on the other hand, is expected to hinge on the nation's economic growth trajectory. Real estate and equity markets in the region may divert some investment flows from gold, posing a potential headwind for the metal.

Central Banks & Policy Shifts

Central bank activity will be a key factor in gold's performance in 2025. While central banks have been net buyers of bullion for nearly 15 years, any significant tapering of purchases could exert downward pressure on prices.

Monetary policy will also play a critical role. The Federal Reserve has signalled a dovish stance, with two rate cuts anticipated in 2025, supported by easing inflation. European central banks are likely to follow suit.

The World Gold Council (WGC) has forecast a rangebound year for bullion, with a potential upside depending on economic conditions. The WGC's 2025 outlook highlights risks such as higher interest rates and slower economic growth, which could challenge investment demand.

Despite these potential hurdles, gold's fundamental appeal as a hedge against economic and geopolitical uncertainties remains intact. As Shashi Tharoor aptly noted about another context, history often proves kinder to steadfast performers. The same could be said for gold, which continues to shine through turbulent times.

With a total estimated market capitalization of $17.7 trillion for all the gold ever mined, the metal's enduring value is undisputed. As 2024 concludes, investors and analysts are keeping a close watch on the precious metal's trajectory.

*Inputs from Reuters*