A golden year

Over the past three weeks, the gold price has moved sideways and is now trading around five per cent below the record high of 2,790 US$ per ounce. Following the steep climb since early March, this may be a necessary recovery break. I, as a runner, know that regeneration is sometimes both underestimated and neglected.

After all, gold prices in US dollars have risen 27 per cent since the beginning of the year, and in euros as much as 34 per cent – thus beating the performance of many other assets by far.

What will happen after the change of power in Washington?

The wait-and-see attitude of recent weeks may well make sense: we are in a transition phase to the new US government, which will take office on 20 January. Whatever its (as yet uncertain) course in terms of tariff and trade policy, it will have consequences for the global economy.

Fed dampens interest rate cut expectations

In addition, the US Federal Reserve sent gold prices tumbling temporarily, having raised its inflation forecasts for the next two years and not expecting a return to the target level of 2.0 per cent until 2027. New projections show that central bankers anticipate only two interest rate cuts of 25 basis points each in 2025. In September, they had forecast four interest rate cuts for next year.

Equities and gold prices under pressure in the short term

The Fed statement also indicated a slower pace of interest rate cuts, stating that ‘the extent and timing’ of additional adjustments would depend on the outlook. The financial markets reacted to the Fed decisions with turbulence while the US dollar saw a significant boost. US Treasury bonds’ yields rose sharply, while stocks and the gold price came under severe pressure. After all, gold pays neither interest nor dividends, and a strong US dollar causes gold to appreciate outside the US.

In the medium term, however, this price dip is likely to be balanced out. Both Asian investors’ demand, particularly pronounced in India and China this year, and the continuing purchases by central banks suggest an upside potential for gold prices in 2025 – although increases on the scale of this year are rather unlikely.

Three weeks ago, on Wednesday evening, gold traded at 2,640 US$ per ounce. After a setback to 2,614 at the beginning of December, the previous monthly high of 2,726 was reached on 12 December. However, the precious metal subsequently gave up its gains – with profit-taking by large investors likely to have played a role. It fell back to 2,633 this Tuesday and even further to 2,584 yesterday after the Fed meeting. This morning, it recovered somewhat to 2,610 US$ per ounce.

After significant setback, slight recovery for Xetra-Gold

The Xetra-Gold price also remained largely unchanged until yesterday afternoon compared to three weeks ago, initially rising from 80.30 € per gram to 83.25 on 11 December but coming under pressure in the days that followed. The Xetra-Gold price dropped to 80.55 on Tuesday and recovered to 80.85 € per gram by this morning due to the weakness of the euro in highly volatile trading.

The markets must now digest the Fed’s messages. High US yields and the strength of the US dollar mean further headwinds for gold prices in the short term. In the medium term, however, continued strong demand from central banks and Asia should support the precious metal and open upside potential.

I wish all our readers peaceful and relaxing holidays and a happy and healthy New Year.