India and China will remain key drivers of gold demand in 2025: WGC report

The World Gold Council’s latest report titled ‘Gold Outlook 2025’ indicates that gold is poised to have its best annual performance in more than a decade – reaching 40 new historical highs and growing 28% year-to-date. It will be influenced by US President-elect Donald Trump’s second term, inflation concerns and trade wars

Mumbai: Gold is on track for its best annual performance in over a decade, rising 28% year-to-date, according to the World Gold Council’s latest report titled ‘Gold Outlook 2025’. This surge is largely driven by increased central bank and investor buying, which has more than offset a slowdown in consumer demand. Asian investors have played a key role, while Western investment flows picked up in Q3, fuelled by lower yields and a weakening US dollar. However, gold’s remarkable performance can largely be attributed to its role as a hedge against rising market volatility and geopolitical uncertainty.

China and India are gold’s largest markets. According to the report, Asia makes up more than 60% of annual demand (excluding central banks). This year, Asian investors added to gold’s performance, particularly during the first half, and Indian demand benefited from the reduction in import duty in the second half. However, the risk of trade wars looms large. Chinese consumer demand will likely depend on the health of economic growth – whether through normal means or government stimuli. And while the same factors that influenced investment demand in 2024 are still present, gold may face competition from stocks and real estate.

According to the report, India seems to stand on a better footing. Economic growth remains above 6.5%, and any tariff increase will affect it less than other US trading partners given a much smaller trade deficit. This, in turn, could support gold consumer demand. At the same time, gold financial investment products have seen remarkable growth and while they make up a small portion of the overall market, they have been a welcome addition to gold’s ecosystem. According to WGC, Asia, especially China and India, will continue to be pivotal in driving gold’s demand.

As attention turns to 2025, all eyes are on the potential economic implications of Donald Trump’s second term. Early “risk-on” flows may benefit investors but concerns over trade wars and inflation could weigh on global growth, making it a challenging year for markets. While gold’s growth in 2025 is expected to be more modest, driven by factors like GDP growth, yields, and inflation, stronger-than-expected central bank demand or worsening financial conditions could lead to a surge in gold prices.

Gold’s impressive performance in 2024 has already set new records. Its price has increased by over 28% year-to-date, surpassing $2,600 per ounce. This growth is partly due to investment demand, bolstered by geopolitical risks and financial market volatility. Central banks have continued to buy gold, further supporting its price, while Western investors flocked to gold during the third quarter, coinciding with interest rate cuts by central banks.

Looking ahead, the direction of the US economy will play a significant role in gold’s outlook. Market consensus suggests the Federal Reserve will cut rates by 100 basis points by the end of the year, with inflation moderating but remaining above target. A steady US dollar and global growth slightly below trend will likely keep gold’s performance in check, but several factors could influence this outcome.

Geopolitical instability, particularly tensions in Asia and Europe, may prompt investors to seek safe havens like gold. The Fed’s approach to monetary policy will also be critical. While gold typically benefits during the early stages of a rate-cut cycle, a prolonged policy pause or reversal could bring pressure to investment demand.

Another key factor is central bank demand, which has been strong for nearly 15 years. Despite a potential slowdown in purchases in 2025, central bank buying will remain a crucial factor for gold’s performance. A continuation of robust central bank demand could provide gold with a significant boost.

Overall, gold’s performance in 2025 will depend on a combination of factors, including economic expansion, risk and uncertainty, opportunity costs, and momentum. While the outlook suggests a more modest growth trajectory for gold, any significant shifts in monetary policy, geopolitical risks, or economic conditions could alter its course. Central bank buying will remain a key determinant, and its impact will be closely watched throughout the year.

Says Juan Carlos Artigas, Global Head of Research, World Gold Council, “Gold is having a record-breaking year due to a confluence of factors, driving the gold price and demand to record levels. And while the current consensus on global economic performance suggests that gold could move sideways, the uncertainty surrounding the geopolitical landscape could provide a springboard for gold next year.”

“2025 is set to be marked by evolving fiscal and economic policies that may result in shifting global dynamics. For gold, 2025 will be a tale of two halves – first, we may experience more risk-on appetite as we wait for strategic and tactical drivers to unravel, leading to more clarity and direction for gold’s performance later in the year. This could really ring true if there is a significant drop in interest rates or a marked increase in market volatility to further fuel investor interest. We also expect global central bank demand and Asian markets to continue playing a pivotal role,” he adds. Retail Jeweller India News