Bitcoin’s unfettered rise has captured the attention of many market watchers lately, with the election of Donald Trump to the White House sending the cryptocurrency – and others like it – on a tear.
Bitcoin has risen almost 50 percent since November 3 – the eve of the US elections – while Dogecoin, a so-called “memecoin” that many crypto investors associate with Elon Musk, has more than doubled in the same period.
But despite crypto dominating the column inches, there’s another unconventional asset class that’s had a blistering year: gold.
Prices for the yellow metal have risen by almost 28 percent in British pounds as investors retreat to their traditional safe haven amid an uncertain geopolitical and economic environment.
After changing hands for the year at £1,602 per ounce (/oz), gold hit several all-time highs in 2024 during a bull run that peaked at £2,163/oz in late November before declining to 2,071/oz at the time. of writing.
Such a big jump over the course of the year would typically cause prices to fall again as investors shy away from the higher price; a trend that is partly confirmed by the dip in the asset class over the past month.
But with geopolitics set for another feverish year and inflation appearing to be increasingly entrenched in many Western economies, many investors in the precious metal are predicting another year of gains in 2025.
Performance of gold in 2024 (chart courtesy of the Royal Mint)
“There is no denying that 2024 has been a record year for gold,” said Rick Kanda, president of The Gold Bullion Company. “It has reached colossal new highs and broken records. This is… a result of economic uncertainty, changes in global inflation and also increased demand.”
Gold has traditionally performed particularly well in times of uncertainty, when investors want to invest less of their portfolio in nervous stock and bond markets.
The consensus view that gold has inherent value – both due to its practical use in jewelry and various tech products, and its historical use as a currency – adds to its appeal when markets are at a fever pitch.
According to Bullion Vault, a British precious metals marketplace, investors don’t foresee this feverish environment going away next year. With a volatile newly elected president gearing up for another term at the helm of the world’s largest economy, several major conflicts heading into the new year and inflationary pressures continuing, Bullion Vault investors are more likely to consolidate their gold holdings than they are to sell. .
The company, which regularly surveys its customers, predicts gold will reach a high of $3,070 by 2025, with respondents citing geopolitics as the biggest factor driving their interest in the yellow metal.
Adrian Ash, research director at the exchange, said Donald Trump’s return to the White House threatened to “upend both global trade and the West’s political and military alliances”, adding: “Investors are capitalizing on the potential of precious metals very seriously as protection against risks.”
Trump turns on the tap: government debt stimulates demand for gold
While the feverish global business outlook was perhaps the main reason for investors to own gold in the new year, with 31.4 percent citing this as a factor behind their decision to hold the asset, the rising national debt is another major driver.
Almost across the board, Western economies have experienced a period of rising government deficits as economic growth struggles to outpace ongoing political pressure to increase government spending.
It’s a trend that dates back to the 2007/2008 financial crisis but accelerated during the pandemic, as leaders borrowed at unprecedented levels to keep their economies afloat while many people were unable to work.
As inflation – and subsequently interest rates – crept upwards as economies unleashed, many government bonds – including those issued by Britain – have fallen to post-crisis lows as lenders begin to price in the growing risk involved by providing loans to countries that borrow more and have more money.
In a note over the summer, Bank of America analyst Michael Widmer said gold “remained the ultimate safe haven” as he predicted it would reach $3,000 within the next 12 to 18 months.
A key factor in Widmer’s bullish intervention was the direction of fiscal policy in the US and abroad. With little sign that any of the then presidential candidates wanted to make a concerted effort to reduce the US’s gaping deficit, and the longer-term pressure to spend on climate adaptation and aging populations around the world, Widmer said that gold is likely to retain its appeal. for investors in 2025 and beyond.
A third key factor for rising gold prices last year, which saw traditional gold bars surpass $1 million for the first time, is growing demand from central banks; especially those who oversee non-Western developing economies.
Due in large part to the factors outlined above, a trend of de-dollarization has emerged in many economies that have until now relied on the global reserve currency as a store of some of their country’s wealth.
Chart courtesy of the World Gold Council
This discomfort with holding too many dollars was exacerbated, according to Michael Maherrey of the Money Metals Exchange, when the Biden administration opted to freeze $300 billion in Russian foreign exchange reserves in the wake of the invasion of Ukraine, and then threatened to liquidate them to help finance Ukraine’s recovery.
Other non-Western central banks, tired of the same fate befalling them, have reevaluated their commitment to dollar reserves since the start of Russia’s invasion of Ukraine and are instead buying more of the precious metal.
Even though central bank purchases have slowed in the third quarter of 2024, economists at ING believe central bankers will remain ‘hungry for bullion’ in 2025, with the Reserve Bank of India (RBI) and the National Bank of Poland will take the lead.
“Looking ahead to next year, we expect central banks to remain buyers due to geopolitical tensions and the economic environment,” analysts said in a recent note. “An April 2024 World Gold Council survey found that 29 percent of central bank respondents plan to increase their gold reserves in the next 12 months.”