The gold market had to deal with huge headwinds this past week as the 10-year Treasury yield soared to 4.64%, the highest level in seven months. Spot gold last traded at $2,618.30 per ounce on Friday (Dec. 27), down 0.57% on the day, with a combined loss of 0.18% for the week.
Affected by the Christmas holiday and the upcoming New Year’s holiday, the precious metals market in the final week of 2024 may continue to remain in a narrow range. Market analysts believe that gold prices will remain caught in a tug-of-war in the near term between rising bond yields and safe-haven demand due to increased geopolitical and economic uncertainty.
James Hyerczyk, market analyst at FX Empire, noted in a report on Friday that the Middle East and Russian-Ukrainian geopolitical backdrop keeps gold in the spotlight, with traders hedging their bets against the risk that the situation could escalate further.
At the same time, some analysts noted that U.S. President-elect Donald Trump’s comments on social media about his intention to annex Canada, the Panama Canal, and Greenland have partially fueled geopolitical uncertainty and tensions.
Hyerczyk noted that the key support level to watch next week will be $2607 per ounce. Gold needs to break above $2,665.65 to regain bullish momentum, he added. The short-term outlook for gold remains predominantly neutral to bearish, with rising yields and a stronger dollar outweighing geopolitical risks.
Looking ahead to 2025, central banks will continue to buy gold, and as inflation continues, the precious metals market could see demand for gold on the retail side increase as well, with the price of gold expected to top $3,000 next year, said Daniel Pavilonis, senior market strategist at RJO Futures.
So far this year, the price of gold has risen 28% and reached an all-time high of $2,790.15 on October 31st.
Hamad Hussain, a commodities economist at Capital Economics, said weak economic activity and a weaker yuan will drive gold demand in China next year. “We believe that the slow collapse of China’s real estate sector will be a major headwind to economic growth and boost safe-haven demand for gold,” he wrote in a recent research note. In addition, a worsening of the real estate crisis would also increase the attractiveness of gold as an investment relative to other assets.
Hussain also noted that China’s stimulus measures have fallen far short of expectations, which should give the gold market a new boost. Capital Economics expects China’s central bank to continue to buy gold through 2025 and seek to diversify away from the U.S. dollar.
The latest data released at the beginning of the month showed that the People’s Bank of China purchased five tons of gold in November, which does suggest that the Chinese central bank is still interested in gold after a six-month hiatus.
Hussain explains that China’s central bank (PBOC) will continue to tilt its $3 trillion in foreign exchange reserves towards gold, which currently only accounts for around 5% of total reserves, even less than the Reserve Bank of India (9.3%).
Looking ahead to 2025, while a stronger U.S. dollar and higher Treasury yields are expected, which would normally lead to lower gold prices, analysts continue to believe that the underpinning of strong demand from China, as well as other non-traditional drivers, will support precious metal prices to remain at elevated levels in 2025.
