Gold investors stay bullish for 2025 on Trump volatility fears

New York - Money managers are seeing plenty of reasons to remain bullish on gold, following a stellar 2024 that saw the precious metal post its biggest annual gain since 2010.

Gold surged 27 per cent in 2024, hitting record highs as it soared to almost US$2,800 per ounce.

Three main factors fuelled the rally: large purchases by central banks, notably those in China and other emerging markets; the US Federal Reserve’s monetary easing, which makes non-yielding gold more appealing; and gold’s historical role as a safe haven amid ongoing geopolitical tensions, including wars in Ukraine and the Middle East.

Those drivers remain more or less intact going into 2025.

But investors are also bracing themselves for Donald Trump’s second term and the new US president’s potential impact on trade flows, inflation and the global economy. That prospect continues to spur gold buying as a way to protect wealth and hedge against potential negative shocks.

Investment diversification through bullion purchases is “a trend that will persist”, said Pacific Investment Management Company portfolio manager Greg Sharenow. “We would expect that central banks and high-net-worth families will continue to find gold attractive.”

At one extreme, US hedge fund Quantix Commodities has 30 per cent of its holdings in gold, almost double the metal’s weighting in the Bloomberg Commodity Index.

Quantix plans to maintain its overweight position through 2025, said senior executive Matt Schwab, who expects gold to rise to US$3,000 in 2025.

Sell-side strategists at Wall Street banks are also bullish.

Bank of America and JPMorgan Chase & Co forecast bullion will reach US$3,000 by the end of 2025, while UBS sees US$2,900. Spot gold traded above US$2,600 an ounce at the start of January.

To be sure, gold has slipped since the US election on Nov 5, 2024.

The metal lost out during a rally in the US dollar, stock market and Bitcoin amid market euphoria over Trump’s victory.

But in the longer term, the likelihood of new tariffs is seen accelerating trade tensions and risking slower economic growth.

Economists and analysts view Trump’s proposed measures as fuelling inflation, complicating the Fed’s path to lower interest rates in 2025.

After delivering the expected quarter-point cut at their final meeting of 2024, Fed officials on Dec 18 signalled just two rate cuts for 2025 and greater caution over how quickly they can continue reducing borrowing costs. 

“Should trade relations deteriorate with new Trump policy, we may see the equity market react negatively,” said DWS Group head of commodities Darwei Kung, who sees bullion rising to US$2,800 by the end of 2025. “Gold would be a good asset to hold to hedge against such risk.”

For the rest of the world, possible trade wars with the US may prompt central bankers to quicken the pace of easing.

That is a scenario that would bolster gold’s performance, according to Swiss firm Frontier Commodities managing partner Aline Carnizelo, who sees prices trading above US$2,800 in 2025.

Portfolio manager Patrick Fruzzetti, from Rose Advisors in New York, said the big difference between now and when Trump was in office the first time is the level of deficit spending.

The US debt load has risen to about US$28 trillion (S$38 trillion) from less than US$17 trillion at the end of 2019, and the federal deficit is projected to exceed 6 per cent of gross domestic product in 2025, according to the Congressional Budget Office.

Concerns about the US government’s ability to pay back the debt could deter some investors from putting money into Treasuries, said portfolio manager Jeff Muhlenkamp, who allocates about 12 per cent of his namesake fund indirectly to gold.

Mr Fruzzetti said of the incoming administration’s pledge to get a grip on the US federal deficit: “Actions speak louder than words… Until they can show me different, I am not downsizing my gold position.” BLOOMBERG