J.P. Morgan strategists say there are multiple macro scenarios that will likely push gold prices higher in 2025.
But after a 30% rally in 2024, some investors are sceptical about where demand will come from with prices at all-time highs.
The key will be from central bank buying and gold exchange-traded-funds inflows, according to J.P. Morgan’s head of base and precious metals strategy, Gregory Shearer.
“Central Banks aren’t done with gold yet, with added political uncertainty likely helping to stoke a revival into 2025,” he said in a recent note.
According to data from the World Gold Council, after dropping in the third quarter of 2024, central bank gold purchases accelerated towards the end of the year, adding 333 tonnes, 54% higher than the prior year.
The People’s Bank of China (PBoC) also returned to gold purchases in November for the first time since April earlier that year.
Shearer said: “With the PBoC buying again and the potential for China’s currency to be further devalued with the risk of tariffs, we think gold-owning appetite among Chinese consumers could receive a boost too as investors turn to gold as a real asset store of value.”
Different macro scenarios that boost gold
J.P. Morgan’s strategists say there are two potential macro scenarios that will likely both be positive for gold prices, but for different reasons.
Under a “disruptive path” scenario, increased tariffs, trade tensions, stronger inflation, budget deficit expansion and increased economic growth risks will fuel gold buying as a debasement hedge.
Investors looking to hedge inflation with real assets are likely to turn to gold since it doesn’t carry the same tariff risks of industrial-linked commodities during a trade conflict, according to the strategists.
In this scenario, central bank gold purchases will likely remain robust, as markets experience higher yields, a stronger US dollar and higher gold prices.
Whereas under a “Fed-focused path” scenario, even if trade tensions are contained and inflation remains under control, J.P. Morgan said the focus will shift to the Fed’s easing cycle.
“This scenario also skews bullish gold in a much more ‘traditional’ way, given gold’s characteristic bullish skew versus falling real yields over a Fed cutting cycle,” the note said.
In either case, both scenarios will all help push gold prices towards J.P. Morgan’s forecast of $2,950 per ounce by the fourth quarter of 2025.
The strategists also pointed to investor demand for gold, and the fact that notional real exchange-traded-fund (ETF) holdings are 6% lower than 2020.
In a more benign macro environment, they said further inflows into gold ETFs are likely as the attractiveness of money market funds wane.
“Gold ETF holdings will likely hold the key to higher prices under this scenario,” Shearer said.
“With over $6trn still parked in money market funds, this demand sector in particular looks primed for inflows under a more benign macro environment in 2025, which refocuses investor attention back on a Fed cutting cycle.”
