People shop for gold jewelry in Beijing on December 29, 2024. Photo: VCG

The global gold market recorded its best performance in more than a decade last year. Analysts expect the rally is likely to continue through 2025, driven by multiple bullish factors. Central banks, in particular, are expected to be the dominant buyers of gold as they seek to diversify their reserves amid an increasingly complex global environment.

After breaking the $2,000 per ounce mark at the beginning of 2024, gold prices have set a stream of record highs, briefly exceeding $2,700. In the first week of 2025, gold prices remain strong, hovering above $2,600 per ounce.

Investment banks have issued optimistic forecasts for gold, offering upbeat projections.

Under a neutral assumption, the COMEX gold futures price may climb to $3,175 per ounce by mid-2025, with prices expected to fluctuate between $3,000 and $3,250 per ounce throughout the year, CITIC Securities' chief economist Ming Ming said.

JPMorgan analysts projected gold prices to keep on rising, potentially reaching $3,000 per ounce in 2025, especially if US' economic policies become "more disruptive" for the market, according to a CNBC report.

The World Gold Council (WGC) predicted a moderate yet positive growth outlook for gold prices in 2025. "Upside could come from stronger than expected central bank demand, or from a rapid deterioration of financial conditions leading to flight-to-quality flows," read WGC's report on Gold Outlook 2025.

Positive market factors

Global gold investment is expected to remain robust in 2025, possibly with "Asia (market) down, while Europe and the US (market) up," Ming said.

"At the beginning of 2024, Asian investors were most prominent in gold purchases, but as expectations for China's economy improve, the market demand might taper off. However, with Europe's weaker economic growth prospects and the more direct influence of European and US investors on gold pricing, the growing demand from Europe could help drive gold prices higher this year," Ming explained.

In 2025, US economic growth is expected to slow down from a year earlier, and its labor market may weaken. However, inflationary easing is expected to stall, possibly creating more inflationary pressures. The US Federal Reserve will face a delicate balance between stabilizing economic growth and fighting inflation, Xu Ying, chief macro strategist at Orient Futures' Derivatives Institute, wrote in an analysis.

In the meantime, the US' federal debt problems may be beyond repair, with the country's fiscal deficits expected to keeping surging. And, the global economic growth remains uncertain in 2025, coupled with ongoing geopolitical tensions, which will further bolster gold's bullish run, Xu said.

Additionally, central bank gold purchases are expected to sustain momentum, as global markets show room for increased gold reserve. As a result, gold's strategic role as a key asset remains secure, Xu noted.

Reserve diversification

Gold reserves remain vital for countries diversifying their international reserves. Among central banks worldwide, China, Poland, Singapore, and others have led gold purchases in recent years.

In 2023, central banks added 1,037 tons of gold - the second highest annual purchase in history - following a record high of 1,082 tons in 2022. In the third quarter of 2024, Poland added 42.33 tons of gold, followed by Hungary's 15.52 tons and India's 12.88 tons, WGC data showed.

After a six-month pause, the People's Bank of China, China's central bank, resumed its gold purchases in November last year. By the end of November 2024, China's official gold reserves had reached 72.96 million ounces, an increase of 160,000 ounces from October, official data showed.

"Central banks' gold purchases continue to be the most significant factor influencing the gold market, and their large-scale buying is expected to continue in 2025 and beyond," Ming said.

With the rise of deglobalization and escalating geopolitical tensions, some countries' central banks are likely to keep increasing their gold reserves in both the short and long term, either to de-dollarize or to hedge against the risks of de-dollarization, according to Ming.

De-dollarization isn't a new trend, but it has gained traction in recent years. As the US continues to impose sanctions and exert pressure on other countries, an increasing number of nations are recognizing the risks of over-reliance on US dollar-denominated assets, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Thursday.

While it will be a long-term process, this de-dollarization trend is expected to be irreversible in the coming time, Xi noted.

As for individual investors, analysts stressed that, with gold prices currently hitting historically high levels, price movements remain unpredictable, necessitating a strong understanding of market dynamics from investors. From a conservative investment standpoint, investors should maintain a balanced approach by diversifying their portfolios, pacing investments thoughtfully, and staying vigilant against market volatility risks.