WGC sees modest demand for gold in 2025, central bank demand crucial
MUMBAI: After a sizzling growth both in terms of demand as well as in prices, which had crossed the USD 2750 mark this week, mostly led by huge demand from central banks and the safe-haven nature of the metal from an investor’s perspective in the years gone by, gold demand is seen moderating in 2025.
According to the World Gold Council, the outlook for gold presents a mix of challenges and opportunities, with the precious metal poised for modest growth amid a dynamic global economic landscape in 2025.
The council expects the price of the metal to rise modestly in 2025 due to factors like central bank actions, geopolitical tensions, and economic conditions in key markets like the US, China, and India.
While lower interest rates and geopolitical risks could boost prices, rising rates and slowing growth may pose challenges. Continued central bank buying is expected to provide support, though.
Potential upside can emerge from stronger-than-expected central bank purchases or economic shocks prompting a flight to safe assets. On the flip side, tighter monetary policies and rising interest rates could weigh on gold, the council said in its annual forecast for 2025.
The US, under President Donald Trump's second term, is a critical factor in gold prices’ trajectory. While his pro-business agenda may boost consumer demand sentiment, global investors are cautious, wary of inflationary pressures and supply chain disruptions.
Though the US Federal Reserve is expected to lower interest rates by 100 bps this year, which historically supports gold, a prolonged pause or reversal in policy could pose challenges.
China and India, the largest gold markets, will remain vital for the industry. While China’s improving economic growth and government stimulus could boost consumer demand, competition from stocks and real estate may limit gold's appeal. In India, with its struggling growth and rising household crises, there may be significant downside risks to demand growth, analysts say.
Central banks have been net buyers of gold for nearly 15 years, recognising its value as a crisis hedge and a reliable reserve asset.
In 2025, central bank demand is projected to exceed the long-term average of 500 tonnes, continuing to bolster gold prices. However, a dip below this level could introduce headwinds for the metal.
It can be noted that the main reason for the 2024 rally in gold prices was the demand from leading central banks, which was mostly led by the Reserve Bank, which snapped up 48 per cent of all central bank buying in October, acquiring 27 tonnes in the month. Other central banks collectively bought 60 tonnes in the month.
The Reserve Bank added a whopping 27 tonnes to its reserves, taking the total tonnage to 882, according to the latest data from the World Gold Council.
The RBI has purchased as much as 77 tonnes between January and October, according to WGC data, based on the reported monthly numbers from the International Monetary Fund (IMF).
It can be noted that gold had touched its historic high prices in October, crossing the USD 2750/ounce mark, and the buying happened at the historically highest prices – maybe prices skyrocketed due to the demand from central banks.
The October purchase represents a five-fold increase compared to the same period of 2023, said the WGC. With this purchase, the country’s total gold reserves stood at 882 tonnes, of which 510 tonnes are held in the country and the rest are mostly in London, Zurich, and New York.
The RBI has been on a gold-buying spree between April 2022 and September 2024 when it added close to 100 tonnes to the reserves.
Between January and September, the RBI had bought 24 tonnes, taking the total to 854.73 tonnes. At the end of March 2024, the reserves stood at 822.73 tonnes, which was only 760.42 tonnes in March 2022, meaning that the RBI had lapped up 94.31 tonnes since then and in September 2024.
In the whole of 2023, the gold reserves went up by 16 tonnes, making the RBI the second-biggest central bank buyer of the yellow metal. In terms of overall forex reserves (in USD terms), gold is worth 9.32 per cent in September 2024, up from 8.15 per cent in March 2024.
The council further said emerging market central banks continued to dominate the market, with Turkey and Poland adding 72 tonnes and 69 tonnes, respectively, till October 2024. This means that these three central banks alone accounted for 60 per cent of the total global net purchases reported this year. Till the first half of this year, the Chinese central bank had led the bullion buying spree.
The central bank of Turkey added 17 tonnes, making October the 17th consecutive month of net purchases and the highest reported monthly figure on record since December 2023. Other central bank buys are less than 10 tonnes.