Gold set to extend record run; may hit Rs 90,000 in 2025 on global cues

New Delhi, Dec 31 (PTI) Gold, a safe-haven bet, is likely to continue its record-smashing journey in the New Year, rising to Rs 85,000 per 10 grams and even Rs 90,000 level in domestic markets if geopolitical tensions and global economic uncertainties continue.

Also aiding the run is a dovish tilt in monetary policy and buying by central banks, but if the geopolitical crisis eases, the precious metal will turn weak on depreciating rupee.

Gold price is hovering at Rs 79,350 per 10 grams in spot markets at present, and Rs 76,600 per 10 grams in futures trade on the Multi Commodity Exchange (MCX).

The precious metal capped off 2024 on a strong note with its best performance, notching 23 per cent returns in the domestic markets. The yellow metal hit an all-time high of Rs 82,400 per 10 grams on October 30 this year. Silver mirrored this stellar performance with a 30 per cent gain, surpassing the Rs 1 lakh level per kg level.

Globally, Comex gold futures started the year at around $2,062 per ounce and rallied to a peak of $2,790 per ounce on October 31, giving returns of up to 28 per cent, reinforcing their appeal amid global uncertainties.

Experts believe that precious metals remain strong performers in 2025 as well, buoyed by geopolitical tensions, central bank purchases, and a pivot towards lower interest rates by major central banks.

The outlook for gold in 2025 remains positive, though the pace of growth may moderate compared to 2024, LKP Securities VP Research Analyst - Commodity and Currency, Jateen Trivedi told PTI.

"Domestic gold prices are expected to reach Rs 85,000 as modest targets, with a best-case scenario of Rs 90,000 and silver expected to deliver bit higher gains towards Rs 1.1 lakh on modest and even hit Rs 1.25 lakh, if geopolitical tensions persist or escalate," he said.

He noted that interest rate cycles are also pivotal as a global shift toward lower interest rates would inject liquidity into markets and weaken the US Dollar, bolstering gold prices.

However, the US Federal Reserve's cautious approach to rate cuts may temper the pace of price increases. Additionally, sustained gold purchases by central banks, driven by diversification strategies and concerns over currency stability will provide strong support to bullion, Trivedi added.

Several factors have shaped the demand demand and supply dynamics of gold in 2024, including a turbulent geopolitical landscape. The ongoing Russia-Ukraine war and tensions in West Asia have spurred safe-haven demand for bullion, thus impacting its prices this year.

"Gold and silver markets have been directly impacted by a turbulent geopolitical environment. These geopolitical crises have typically caused an immediate 2-3 per cent spike in prices, reaffirming investors' preference for precious metals as a shield against uncertainty," Trivedi said.

However, Commtrendz Research co-founder and CEO Gnanasekar Thiagarajan told PTI that gold prices are struggling to keep up the momentum as the geopolitical uncertainty and economic uncertainty premium have started fading away.

"Market participants are now taking into consideration US President-elect Donald Trump's tariff era, economic policies and their potential future impact on the Fed's mandate to bring inflation down to 2 per cent. Higher inflationary expectations could undermine the appeal for bullion.

"Furthermore, we would not be surprised to see the Fed opt for a cut from May onwards, as it could allow for a clearer picture to be formed on the new administration's actual economic policies rather than comments made potentially to gain negotiation leverage with foreign counterparts," he stated.

The outlook is bearish for gold in the first half of 2025, with the possibility of testing $2,455 (MCX: 73,000-73,500), he said.

The rupee is expected to depreciate further, which could arrest the fall in local prices relative to international prices in the coming year, he added.

In the domestic markets, the government's decision in July this year to cut gold import duty by 6 per cent led to a sharp 7 per cent correction in gold prices, equivalent to Rs 5,000 per 10 grams.

The price drop spurred physical demand for gold during the festive and wedding seasons. The reduction not only made gold more affordable but also boosted increased buying, supporting robust consumption by the jewellers and consumers.

"Gold jewellery consumption grew by 17 per cent in 2024, primarily driven by volatility in gold prices, along with festive and marriage-related demand. Additionally, the sharp 900 basis points reduction in import duty announced in the Union Budget of July 2024 spurred demand for jewellery, bars, and coins," Rahul Kalantri, Vice President of Commodities at Mehta Equities Ltd, said.

The price correction following the duty cut boosted jewellery demand by an estimated 17 per cent year-on-year.

According to Srikumar Krishnamurthy, Senior Vice President and Co-Group Head - Corporate Ratings at Icra Ltd, the domestic jewellery industry, in value terms, had grown at a compounded annual growth rate (CAGR) of 11 per cent over the period FY 2019 to FY2024.

Krishnamurthy said the organised jewellery trade is likely to remain supported by factors, such as store expansions in Tier II and III cities, better realisations amid elevated gold prices, a shift in preferences towards branded jewellery, favourable monsoons aiding better rural output and overall benefits of the customs duty cut shall continue to support the organised trade.

The global demand for precious metals has increased substantially, with major central banks, including India, continuing their gold-buying spree, with net purchases exceeding 500 tonnes in 2024, as it reflected a strategy to diversify their reserves amid economic uncertainties.

"Central bank buying has been a pivotal factor. Their accumulation reflects a long-term strategy to hedge against fiat currency volatility, adding upward pressure on gold prices," Manav Modi, Analyst, Commodity Research at Motilal Oswal Financial Services Ltd, said.

In November, the country's gold imports reached a record high of $14.86 billion, registering a four-fold increase, mainly on account of festival and wedding demands.

Meanwhile, the re-election of Donald Trump as US President for the second term added an unexpected twist to the bullion markets. Trump's stance towards cryptocurrency resulted in a rally in digital assets, combined with rising treasury yields, which diverted some investors away from gold.

The exchange-traded funds (ETFs) outflows also reflected this shift, adding imminent pressure on the bullion prices in the latter half of the year.

The US Fed monetary policy is one of the other major factors that will shape bullion prices. While early expectations of aggressive rate cuts buoyed prices, the Fed's cautious approach forecasting only two rate cuts for 2025 -- may temper gains.

As per Angel One's DVP- Research, Non-Agri Commodities and Currencies, Prathamesh Mallya, despite these headwinds, we expect gold to maintain its momentum in 2025, with double-digit returns. Gold prices in the international markets might move higher towards $3200 per ounce mark, while MCX gold prices might rally towards Rs 87,000 per 10 grams in 2025.

In 2025, gold is poised to remain a pillar of stability in an ever-changing economic and geopolitical landscape.

India added 27 tonnes of gold in October, bringing its total gold purchases to 77 tonnes from January to October 2024, WGC data based on an International Monetary Fund (IMF) report stated.

Kotak Securities Head Currency and Commodity Research Anindya Banerjee said 2024 has been a landmark year for gold, with Comex gold surging over 40 per cent from its yearly lows to reach an all-time high of $2,801.8 per ounce in October.

"This historic rally marks its largest annual gain since 1979. On the domestic front, MCX gold followed suit, climbing over 25 per cent year-to-date due to robust physical demand," he stated.

Robust retail demand and central bank purchases also played a crucial role, with central banks buying over 1,000 tonnes of gold annually for the past two years, he said, adding that China emerged as the largest buyer, contributing to the strongest start to a year on record for central bank gold purchases.

In tandem, hedge fund activity in March added 285 tonnes to gold demand, signalling strong market confidence, he said.

Meanwhile, on consumer sentiment, All India Gem and Jewellery Domestic Council (GJC) chairman Saiyam Mehra told PTI that the industry is positive for 2025, with the expectation of promising domestic demand, strong export potential, and ongoing transformation through digitalisation and sustainability efforts.

"The India Gems and Jewellery Industry is set for substantial growth by 2025, driven by a combination of domestic demand, export potential, and strategic initiatives. India's gems and jewellery market is expected to grow to $100 billion by 2025. The country continues to be one of the largest global hubs for the production, export, and consumption of jewellery," he said.

The sector, Mehra said, is expected to achieve a compound annual growth rate (CAGR) of 5-6 per cent during this period, driven by strong consumer demand, both locally and globally.

"Though we expect prices of the precious metals to rise further in 2025, it should not affect the overall demand for gold, and we are hopeful that it will be better than 2024, as India's middle class and young population (which forms a significant portion of the consumer base) will continue to drive demand for Gold and Diamond jewellery. The wedding jewellery market will also remain a major growth driver in India," he added.

Exporters are also positive about 2025, saying the demand is expected to grow in key export markets, especially in China.

"2024 has been challenging for the industry due to ongoing geopolitical tensions that affected the demand. Even the slowdown in demand in key export markets like the US and China affected the overall exports," Gem & Jewellery Export Promotion Council (GJEPC) chairman Vipul Shah said.

The main question is how to control production in line with the demand, he said.

"However, we expect in 2025, the demand will be better, following the easing of the geopolitical scenario and growing demand in China. This is due to destocking and the Chinese government injecting liquidity, which will help in growth in demand in 2025," he added.