Gold Prices Rally Not Over Yet: Insights from ING

According to analysts at ING, the surge in gold prices isn't over just yet. The precious metal has seen a remarkable rally in 2024, soaring 25% year-to-date, driven by several factors:

• Federal Reserve rate cuts
• Increased central bank purchases
• Strong safe-haven demand amid geopolitical and economic uncertainties

ING predicts these factors will continue to drive gold prices to new highs in 2025.

Impact of Federal Reserve Rate Cuts

The easing cycle of the Federal Reserve has played a crucial role in supporting gold’s rally. In September, the Fed executed its first rate cut since 2020, slashing rates by 50 basis points, followed by another 25 basis points in November, lowering the federal funds target range to 4.5%-4.75%.

ING states that lower borrowing costs benefit gold because the metal doesn’t yield interest. Previously, the Fed maintained rates in the 5.25%-5.5% range, the highest in over two decades.

Looking ahead, ING believes the market will closely monitor the pace of monetary easing under President Donald Trump’s administration. However, inflationary pressures from Trump's proposed policies, such as tariffs and stricter immigration control, could hinder further rate cuts. ING’s U.S. economist, James Knightley, predicts a possible 25 basis point cut in December, with uncertain future trajectory beyond that.

Central Bank Activity

Central bank demand for gold is also driving the market. In the third quarter, the pace of purchases slowed due to high prices, but notable buyers included:
– Poland’s central bank added 42 tonnes to its reserves, totaling 420 tonnes, or 16% of its holdings.
– India's Reserve Bank continued its monthly buying streak.
– China’s People's Bank did not increase holdings for the sixth consecutive month in October.

Looking to next year, ING expects central banks to remain active buyers due to ongoing geopolitical tensions and economic instability. A survey by the World Gold Council in April 2024 found that 29% of central banks plan to bolster their gold reserves in the coming year.

ETF Trends and Future Projections

Global gold ETFs have recorded inflows for six months, primarily driven by demand from North America and Asia. Although a divergence occurred earlier in 2024, with record prices not translating into ETF inflows, the trend reversed in May.

ING analysts believe that short to medium-term momentum for gold will persist as interest rates drop and foreign reserves diversify due to geopolitical issues.

Despite potential constraints from Trump’s inflationary policies, stronger trade tensions could amplify gold's appeal as a safe haven. ING forecasts gold prices to average $2,760 per ounce in 2025.