Driven by factors such as strong global gold exchange-traded fund inflows and over-the-counter (OTC) demand, gold’s record-breaking year of 2024 saw the gold price rising by more than 28% in US dollars, trading 22% higher on average last year than during 2023, the World Gold Council’s (WGC’s) ‘Gold Outlook 2025’ states.

The precious metal’s performance across other currencies was equally strong, with the WGC noting that the precious metal reached 40 new record highs during the year and that total gold demand in the third quarter surpassed $100-billion for the first time.

The WGC explains that the market consensus of key macro variables such as gross domestic product, yields and inflation, if taken at face value, suggests a positive but much more modest growth for gold in 2025.

It explains that an upside could come from stronger than expected central bank demand, or from a rapid deterioration of financial conditions leading to flight-to-quality flows. Conversely, the WGC says a reversal in monetary policy, leading to higher interest rates, will likely bring challenges.

“In addition, China’s contribution to the gold market will be key: consumers have been on the sidelines while investors have provided support. But these dynamics hang on the direct – and indirect – effects of trade, stimulus and perceptions of risk.”

WGC chief market strategist John Reade notes that central bank buying remained strong throughout 2024. There was also strong emerging market demand in the first half of the year, particularly for investment and jewellery from China at the beginning of the year.

One of the major drivers of the record gold prices has been moves by central banks to diversify their foreign reserve holdings away from the US dollar in large emerging markets, including China, Russia and Turkiye, adds Minerals Council South Africa chief economist Hugo Pienaar.

This process of reserve diversification has included the aggressive buying of gold.

“Central bank gold buying is a function of countries not wanting to be overly exposed to dollar assets should they fall foul of the US amid rising geopolitical tensions. As a result, we have seen strong physical demand for gold. In fact, central bank gold buying was at a record high in 2022 and close to that level in 2023,” Pienaar adds.

The WGC says central banks will remain an “important part of the puzzle” this year, noting that central bank demand will continue to “provide a boost” to gold, should it remain at a healthy level.

“Central bank buying is policy driven and thus difficult to forecast, but our surveys and analysis suggest that the current trend will remain in place. In our view, demand in excess of 500 t – the approximate long-term trend – should still have a net positive effect on performance. And we believe central bank demand in 2025 will surpass that. But a deceleration below that level could bring additional pressures to gold.”

Moreover, Reade says the performance of the gold price will depend on the direction of US and other Western interest rates, as well as the strength or weakness of the US dollar against major currencies. The US dollar has strengthened since the US election results, which is one of the reasons why gold “has corrected” from its all-time highs.

“If US dollar strength continues, that will be a headwind for gold. But if interest rates come down and the dollar weakens somewhat, then that will help to boost the gold price in 2025,” he says.

Safe-Haven Asset Reaffirmed

An increase in global uncertainty and turmoil – resulting from factors such as the escalation of tensions in the Middle East, the ongoing Russia-Ukraine war and periodic concerns about Chinese aggression towards Taiwan – has created conducive conditions for gold, reaffirming it as a safe-haven asset, says Pienaar.

He posits that general anxiety about geopolitical tensions, uncertainty about the economic policy environment after the US election and the start of interest rate reductions by developed-country central banks have supported investor demand for gold.

“Gold is a non-interest-bearing asset, implying that lower interest rates tend to be positive for gold. Particularly now that Donald Trump has returned to the White House in 2025, many non-US central banks may feel obliged to continue buying gold because they are concerned about Trump’s policies.”

Although a stronger US dollar in the wake of Trump’s victory initially weighed on the gold price, Pienaar adds that the outlook for gold remains positive, noting that it is not always clear how responsive the gold price is to higher global inflation.

“A Trump Presidency could result in higher inflation if he follows through on threats to dramatically increase import tariffs on Chinese and non-Chinese goods. In addition, a Trump clampdown on immigration into the US will reduce the supply of labour in the US and drive up labour costs. This will also be inflationary, or at least slow the rate at which US inflation moderates towards the Federal Reserve Bank’s 2% target,” Pienaar explains.

Additionally, Reade argues that Trump’s election as US President is expected to be positive for gold demand over the medium to long term.

International holders of US dollar assets, such as central banks, will regard the prospects of another Trump Presidency as a reason to accelerate moving away from the US dollar and US dollar assets, owing to fears or expectations of further weaponisation of the US dollar by the Trump administration.

Reade adds that there are likely to be tax cuts, higher government spending in certain areas and potentially lower economic growth during the new Trump administration, as a result of some of the economic and political policies that the incoming President spoke about during his campaign.

He notes that the imposition of tariffs on imports and the expulsion of millions of illegal or undocumented migrants could be negative for the US economy, while tax cuts would cause the budget deficit to widen.

“One of the motivations behind high-net-worth individuals buying gold is concerns about the size of the US debt and the size of the budget deficit each year. Both are likely to grow under a Trump Presidency, and I expect to see more demand from people looking to protect themselves against the economic policies of the US. I think it’s going to be a year in which US economic and political actions are more important for gold than they have been in the last two or three years,” he elaborates.

Local Impact

Gold Fields corporate affairs VP Sven Lunsche agrees that central bank buying and political volatility, rather than the global economic environment, have been the main drivers of the recent rise in the gold price.

While lower interest rates have traditionally been perceived as bearish for gold, the current market trends do not reflect this pattern. Higher gold prices, coupled with a stable rand, have boosted the rand gold price, which has been positive for South African gold miners.

Lunsche adds that higher US tariffs are unlikely to have a direct impact on the rand gold price, noting that, while a stronger US dollar could lead to imported goods becoming more expensive, this impact is likely to be limited.

While the main South African gold mines are run efficiently and should benefit directly from a continued higher gold price, overall, production is declining as mines become deeper, and labour and utility costs become more expensive.

This has led to reduced margins and cut-off grades, making many orebodies economically unviable, despite the higher gold price, Lunsche adds, noting that there is also an increasing skills shortage in South African gold mining, which is starting to impact on production.

Lunsche notes that Gold Fields’ mineral reserve price of $1 500/oz – the price the company uses to determine the economic viability of its gold reserves – provides a price level that the company’s mines use to develop their business plans for the years ahead.

The strong gold price over the past two years has provided notable tailwinds for Gold Fields’ financial performance, generating significant free cash flows, strengthening its balance sheet and enabling the company to pay a strong dividend to shareholders.

“However, we are mindful that the favourable gold price and exchange-rate support will not persist. We remain committed to building a resilient business that delivers sustainable value for stakeholders, including competitive returns to shareholders, through the price cycles. Key to this is running the group and our mines more efficiently, as high inflation in the industry in recent years has started to erode margins and asset valuations,” he says.