Gold Prices Continue to Climb

Gold prices are significantly outperforming the S&P 500, showing a 29% increase since the year's start. Analysts project further gains through 2025 as central banks maintain their gold accumulation to diversify reserves.

Recent data from the International Monetary Fund (IMF) indicates that October witnessed the highest net gold purchases by global central banks this year. Due to historical underreporting of these purchases, expectations have increased, with projections of 982 metric tons to be acquired in the current year, up from a previous estimate of 900 metric tons.

Although this figure is below the buying levels seen in the last two years, it marks a significant rise from the annual average of about 500 metric tons since 2011. The surge in buying activity is anticipated to persist as central banks continue de-dollarization efforts, with at least another 900 metric tons expected to be purchased in 2025.

Amid ongoing geopolitical uncertainties, including the Russia-Ukraine conflict and Middle Eastern tensions, demand for gold as a portfolio hedge is expected to rise. This situation is likely to encourage further inflows into gold exchange-traded funds (ETFs).

Interest rate trends are also expected to enhance gold's attractiveness. The Federal Reserve is anticipated to lower rates by 25 basis points on Wednesday, with additional cuts projected for the coming year. Lower interest rates reduce the opportunity cost of holding non-interest-bearing assets like gold.

Additionally, a medium-term predicted weakening of the US dollar, prompted by lower interest rates and concerns over the US government debt trajectory, should bolster gold prices. A weaker dollar makes gold cheaper for investors using other currencies, thereby increasing its demand.

Analysts maintain a bullish outlook on gold for the next year, forecasting prices to hit $2,900 per ounce by the end of 2024. They recommend a 5% allocation to gold within a USD-based balanced portfolio as a diversification strategy.

Beyond gold, there are opportunities in copper and other transition metals, driven by rising demand due to increased investments in power generation, storage, and electric transport.

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