Will gold keep its shine in 2025?
Gold has set a series of records in 2024, helping to double the value of one FTSE 250 stock in the process. What’s the outlook for bullion in the coming year?
18th December 2024 12:34
by Graeme Evans from interactive investor
A gold price that kept pace with the S&P 500 index in 2024 has been backed for more records after a City bank today retained its bullish stance on the precious metal.
Bullion’s year-to-date rise of 28% is slightly ahead of the strongly performing Wall Street benchmark, helping London-listed stocks such as Hochschild Mining (LSE:HOC) along the way.
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The usual hedge against inflation and geopolitical uncertainty has powered gold’s ascent from $1,570 an ounce in October 2022 to as high as $2,790 at the end of October. It’s since fallen back to $2,650 after a rise in US Treasury yields dented the appeal of holding non-yielding bullion.
However, UBS Global Wealth Management believes that gold is capable of setting fresh records in 2025 after forecasting the yellow metal will reach $2,900 by the end of next year.
The bank also notes longer-term opportunities in copper and other transition metals as demand increases alongside rising investment in power generation, storage and electric transport.
UBS told investors this morning that lower interest rates will support the case for holding gold. The Federal Reserve is due to cut interest rates by another 0.25% this evening, with more easing in the coming year set to reduce the opportunity cost of holding the metal.
It added: “A weaker US dollar in the medium term, due to lower rates and concerns over the US government debt trajectory, should also support gold prices.
“Since gold is denominated in US dollars, a weakening of the US currency makes the metal cheaper for non-dollar investors, bolstering demand.”
The appeal of gold as a key portfolio hedge should also rise in the year ahead, the bank added.
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While US President-elect Donald Trump’s policy agenda has been well documented, uncertainty remains on what will be implemented from fiscal, trade, and geopolitical standpoints, especially given his transactional approach.
UBS said: “With the Russia-Ukraine war still ongoing, and the situation in the Middle East no less complicated, we think investor demand for hedges should rise further, boosting inflows to gold exchange-traded funds.”
It also expects that central banks will continue to accumulate gold as they diversify reserves.
The latest International Monetary Fund (IMF) data showed that global central banks’ net gold purchases in October rose to the highest monthly level this year.
The bank now expects the official sector to buy 982 metric tons of gold this year, up from its previous estimate of 900 metric tons.
While this remains lower than levels seen over the past two years, it represents a significant step up from the average of around 500 metric tons in the years since 2011.
“We think the strong buying momentum will continue amid de-dollarisation efforts and expect central banks to buy another 900 metric tons of gold or more in 2025.”
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Boosted by the record gold price and May’s start of commercial production at its Mara Rosa mine in Brazil, Hoschschild shares have more than doubled to 217p as one of this year’s best performers in the FTSE 250 index.
It has been able to repay debt and advance growth projects in Brazil and Peru, while a resumption of capital returns is set to be considered with annual results in the new year.
Peel Hunt published a note yesterday reiterating a price target of 280p but said it continued to see significant long-term value in shares of up to 450p should the company unlock development projects such as Monte do Carmo in Brazil.
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