By Naeem Aslam – January 3, 2025
Gold has started 2025 on the front foot after recording stellar gains in 2024. The precious metal, known for its status as a safe-haven asset, has benefitted from a combination of economic uncertainties, geopolitical tensions, and shifting monetary policies. There is no doubt that towards the end of 2024, there was profit-taking that happened, which pulled the prices away from their all-time high. However, as we begin the first trading day of 2025, traders are recalibrating their views and their trading strategies, and that is helping the shining metal’s price.
Recap of 2024: A Stellar Year for Gold
The shining metal experienced a remarkable surge in 2024, with prices rising significantly due to a mix of factors. Central bank policy changes, particularly the rate cuts from the Federal Reserve, played a major role in boosting the price of gold. The price of yellow metal closed the year with a gain of 27%, which was a 23% increase from its previous year.
The reason that prices for the yellow metal retraced from their all-time high was mainly due to two factors. Firstly, traders started to book profit as the yearly gains for the shining metal were looking too good to be true. Secondly, the economic data in the US, especially the inflation numbers, started to make a wrong turn. After dropping to the lowest level in 2024, US inflation numbers started to rise, which made the Fed rethink their ultra-dovish monetary policy, which produced a number of interest rate cuts in 2024. Towards the end of the last year, the sentiment among traders was that the Fed is unlikely to cut the rates further in their next meeting, and this caused the dollar index to move higher against the gold price.
Recalibration with new views
Going into 2025, traders are thinking of three important factors that could really help the gold price. Firstly, the big event will take place on Jan 20 of this year when the new president will be in the White House. Donald Trump, elected US president, is likely to put pressure on the Fed to cut rates further as he is an advocate of a lower interest rate environment. This means that despite the fact that some members of the Fed may not want to cut the rates, the Fed may be forced to cut the interest rates in the US by the new president.
Secondly, the elected president is most certainly going to heat up the trade war with other countries, especially with Canada, Mexico, Europe, and China. This means that economic growth may suffer and geopolitical uncertainties may anchor. If it happens, it may make some investors rethink the dollar as the safe haven currency, which could bring more demand for the shining metal. This particular narrative is helping the shining metal’s price.
Thirdly, we are in a period where most investors will reallocate money to their portfolios, and this means that we could potentially see some new money following the shining metal’s price given its performance for the past two years and also due to potential geopolitical tension driven by trade policies.
Price Action
The chart below shows important price levels for the gold price. The price has moved above the 50-day SMA, which is positive for the price action, and as long as the price continues to trade above this, we are likely to see a more positive bullish trend.
