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Central banks have shown a strong preference for gold over the US dollar, a trend projected to stretch into 2025. This year, gold rose to 16% of global reserves as the dollar fell by 58%, reflecting a shifting tide in preference among the world’s largest investors.
Against a backdrop of rising economic instability and geopolitical tensions, governments are shifting in the direction of physical precious metals and away from fiat currencies such as USD. The yellow metal might not top its 2024 gains, but these gold-positive factors are likely to persist far into 2025.
Key Factors Behind Gold’s Rise
In an interview with Schwab Network, Joe Cavatoni, Chief Market Strategist for North America World Gold Council (WGC), highlights the three strongest tailwinds pushing gold to new heights:
Central Bank Buying
Relentless central bank gold consumption has been the central catalyst behind gold’s outperformance. National-level investors have poured into physical gold bullion, diversifying their reserve portfolios due to twin motivations:
- Strengthening domestic economies by shoring up local currencies
- Hedging against the dollar’s weakness and potential weaponization
Emerging markets, such as Russia, China, and other BRICS countries, account for an outsized share of this booming demand as gold becomes a central component of economic independence and de-dollarization.
Shifting Retail Demand
Another major factor driving gold’s rise is a “Tale of Two Cities” in terms of retail demand. Eastern investors got a head start on their Western counterparts with robust gold purchases at the front end of the year.
However, gold ETF inflows were decisively overtaken by North Americans in the latter half of 2024 as investor sentiment turned bullish. This rotating yet consistent demand kept gold prices elevated even as purchase behavior shifted across markets.
Rising Geopolitical Intensity
The geopolitical landscape hasn’t looked this fraught in decades with raging regional conflicts threatening to launch World War III. Investor confidence has tanked as people turn away from dollar-linked assets in favor of tangible investments such as precious metals. The question marks dotting the horizon keep investors erring on the safe side, further eroding the appeal of more conventional markets.
A Favorable Monetary Policy
These three core drivers of gold’s stellar growth over the past year have occurred within a favorable monetary environment, furthering their positive impact. The Federal Reserve’s decisive interest rate cuts reduce dollar demand and make non-yielding assets such as gold more appealing.
From a broader perspective, Modern Monetary Theory (MMT) policies, which greenlit decades of unchecked spending and printing, heightened inflationary pressures. The longer inflation tends to hang around, the stronger the push toward gold.
Gold’s 2025 Outlook
The three main drivers of gold’s recent growth are expected to fuel further gains in 2025. However, Cavatoni points to other potentially decisive variables:
Trump 2.0 Policies — President-elect Trump’s disruptive economic policies are poised to keep inflation elevated, even when achieving their desired effect. Entrenched inflation tends to buoy gold prices as investors seek to hedge their investments.
Renewed Eastern Demand — India and China comprise the largest source of retail gold demand, primarily from jewelry. While these sources have dried up lately, a resurgence in 2025 could considerably elevate gold prices.
Global Market Event — Rising global instability keeps investors on edge, awaiting another catastrophic economic reset. The yellow metal thrives in these uncertain times. As Cavatoni explains, “Gold performs 11 out of the 12 market events that we’ve seen over the last 15 years.”
All in all, 2025 gold price predictions are considerably healthy with many experts seeing gold reaching $3,000/oz. In fact, David Tait, the CEO of WGC, recently said, “I would expect to see gold top $3,000 at some point next year without any trouble at all.”