Central Banks, Rate Cuts, and Inflation: The Perfect Storm for Gold

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Wall Street analysts predict gold's rally will continue in 2025 after the metal posted its largest annual gain in 14 years. 

Gold futures surged over 1% on Thursday, climbing past $2,670 an ounce — the highest since mid-December — as investors anticipated further Federal Reserve rate cuts and increased bullion purchases by foreign central banks. Despite a temporary slowdown following Donald Trump’s November election victory, gold ended 2024 up more than 27%, outpacing the S&P 500’s 23% gain.

JPMorgan analysts reiterated their bullish stance on gold for the third consecutive year, citing its potential to hedge macroeconomic uncertainties as the Trump administration begins in 2025.

They forecast prices could approach $3,000 per ounce. Similarly, Goldman Sachs projects gold to hit $3,000 by the end of 2025, fueled by central bank purchases, with a possibility of reaching $3,050 if buying exceeds expectations. However, prices might plateau around $2,900 if the Fed limits rate cuts to just one this year.

Sticky inflation has cast doubt on how quickly borrowing costs can be reduced. Some Trump administration policies, such as higher tariffs, may also accelerate inflation. Analysts believe if the Fed lowers rates at least twice, retail investors could enter the market, seeking to hedge their portfolios and preserve wealth. 

"The retail investor largely stayed out in 2024," noted Steven Feldman, CEO of precious metals platform GBI. "Rate cuts, higher inflation, or stagflation could attract US retail investors, providing additional support for gold prices."

Paraphrasing text from "Yahoo!Finance" all rights reserved by the original author.