Gold (XAUUSD) price forecast amid risk aversion

30 Aralık 2024

Gold (XAUUSD) Price Forecast Amid Risk Aversion: How Are Markets Reacting to the Pre-Trump Administration Phase?

Written by: Rania Gule, Senior Market Analyst at XS.com

Gold prices (XAU/USD) appear to be regaining momentum after recent declines, trading at $2,618.70 on Monday. This recovery benefits from current global market conditions and mixed expectations regarding U.S. monetary and economic policies. In my view, this improvement persists despite reduced trading volume typical of year-end sessions, as investors focus on potential signals from the incoming U.S. administration and the Federal Reserve’s 2025 outlook.

As the Trump administration nears its tenure, its anticipated economic policies seem poised to play a critical role in shaping market sentiment. Expectations of new tariffs and stricter trade policies could ignite widespread trade conflicts, amplifying risk aversion among investors. This scenario paves the way for increased demand for gold as a traditional haven during periods of uncertainty. However, contrasting expectations of Federal Reserve rate cuts in 2025 could weigh on gold prices, limiting gains due to its non-yielding nature.

In my opinion, geopolitical tensions provide additional support for gold prices. The ongoing conflict between Russia and Ukraine exerts significant pressure on global stability, recently heightened by reports of thwarted assassination plots in Moscow, which have fueled international concerns. Meanwhile, the Middle East remains fraught with escalating disputes, underscored by fresh confrontations. Such events bolster the appeal of safe-haven assets, contributing to gold’s upward trajectory.

Forecasts suggest gold will close 2024 with a 27% rise, marking its best annual performance since 2010. This impressive growth has been driven by several key factors, including substantial central bank purchases aimed at diversifying reserves away from the U.S. dollar, rising geopolitical tensions, and accommodative monetary policies implemented by major central banks amid a global economic slowdown.

The U.S. dollar, a key driver of gold price movements, continues to trade at relatively lower levels, as reflected by the Dollar Index (DXY). This dollar weakness, coupled with declining U.S. Treasury yields, creates a favourable environment for gold. Yields on two-year and ten-year Treasury notes have steadily decreased, enhancing gold’s attractiveness as a safe-haven asset.

On another front, the Federal Reserve has adopted a more cautious stance regarding future rate cuts. In its December meeting, the Fed reduced rates by a quarter point and signalledadditional cuts next year. In my view, this reflects a state of anticipation and uncertainty, as markets seek to digest potential changes in monetary policy and their implications for the economy and financial markets.

I believe gold faces several challenges in the near term, with one of the most significant being the political and economic decisions of the Trump administration. These policies may have a dual impact. On one hand, they could escalate trade tensions and drive demand for gold, while on the other, they might bolster certain sectors of the U.S. economy, thereby dampening gold’s safe-haven appeal.

Ultimately, I find the outlook for gold prices in the coming phase to be complex and multifaceted, hinging on a delicate balance of economic and geopolitical factors. While current indicators suggest robust support for continued gains, future movements remain contingent on global economic developments and U.S. monetary policies. In these conditions, gold emerges as a highly resilient investment asset capable of adapting to market shifts, though it remains sensitive to external forces that may steer markets in unforeseen directions.

 

Zaid Barem / YMM