The joyous festivities surrounding New Year’s Day and the Lunar New Year often spark an uptick in gold investmentWith the holiday season approaching, the gold market becomes the center of attention, enticing investors to consider the allure of this precious metal once again.
Recent reports indicate a noteworthy surge in the gold market in December 2024. As of December 26, the international gold price stood at $2,619.21 per ounce, while domestic prices hovered around ¥617 per gramThis brings up an important question: Is this the right time to invest in gold?
According to the World Gold Council’s latest report titled "Gold Outlook 2025," this year is poised to deliver one of the strongest annual performances for gold that we have witnessed in over a decadeHowever, following this robust uptrend, growth in the gold market may experience a slowdown in 2025, though there still appears to be potential for further increases in price.
Xu Zhiyan, the assistant general manager at Hua'an Fund, expressed his view on the market's uncertainty in the short-term
He notes that various factors influence gold prices across different market cycles, including the Federal Reserve's monetary policy, economic fluctuations, inflation expectations, and global uncertaintiesHe encourages investors to adopt a rational approach, viewing gold as a medium to long-term investment rather than a short-term trading tool.
As of December 26, the opening price for spot gold on the London exchange, colloquially referred to as "London Gold," was $2,619.21 per ounce, reflecting a decline of 6.12% from this year’s peak of $2,790.07 per ounceVarious analysts have provided insights as to why there has been a correction in gold prices recently.
Wang Xinjie, the chief investment strategist at Standard Chartered’s Wealth Solutions division in China, attributed the recent price correction to the consequent market sentiments following Donald Trump’s recent election victory in November, compounded by the hawkish tone from the Federal Reserve's meeting in December
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These events have driven the real yield on U.S10-year treasury bonds significantly higher, rising from approximately 1.95% in early November to above 2.2% currently, creating an inverse relationship between gold prices and U.Sreal rates.
Further analysis by Zheng Hong, a senior macro analyst at Zheshang Futures Research Center, indicated that the adjustment in gold prices stems from both a decline in investment demand and a retreat in safe-haven demandHe noted that following the Fed's hawkish tone regarding interest rate cuts in December and the recent positive employment and inflation data in the U.S., market expectations grew that the frequency and magnitude of rate cuts would decreaseAdditionally, an uptick in Treasury yields has bolstered the U.Sdollar, leading to a drop in holdings of gold ETFs and subsequent market sell-offs.
On the topic of safe-haven demand, Zheng noted geopolitical tensions, particularly the outbreak of conflict in Syria in early December, which initially increased the demand for safe-haven assets
However, the lack of escalation in these tensions over the following weeks has resulted in diminished focus, with the global geopolitical risk index retreating to lower levels, consequently reducing support for gold prices.
Interestingly, data released by the People’s Bank of China in early December indicated that the country’s gold reserves stood at 72.96 million ounces as of the end of November, an increase of 160,000 ounces from OctoberThis marked the central bank’s renewed interest in bolstering its gold reserves after a six-month hiatus.
Wang Qing, Chief Macro Analyst at Dongfang Jincheng, emphasized that China’s gold reserves comprise a relatively low proportion of its international reservesHe sees the central bank's increased purchases as a strategic move to optimize its reservesMore importantly, gold serves as an internationally accepted ultimate means of payment, which can bolster the credibility of the sovereign currency and facilitate the internationalization of the RMB.
The year 2024 could be described as a remarkable year for gold prices, with returns soaring
As of the end of November, gold prices, represented by Au9999 from the Shanghai Gold Exchange, had climbed 28%, making it one of the best-performing assets domestically.
Listing various factors contributing to this heightened demand, the World Gold Council identified fluctuations in the RMB, strong investment momentum (including considerable inflows into gold ETFs), changes in economic expectations, and shifts in supply and demand within the Chinese gold market.
Given the present market conditions, is now the optimal time to invest in gold? Li Yuefeng, a researcher at the Beijing Gold Economic Development Research Center, opines that due to gold prices being in a phase of adjustment, this may not be the most favorable entry pointHe suggests that for buyers of jewelry or investors, a better strategy would be to wait until the end of Q1 in 2025, when international gold prices should ideally fall below $2,500 per ounce, placing domestic prices in the range of ¥600-¥580 per gram.
Li further forecasts that the gold market may continue its phase of adjustment over the next three to six months, trending towards a relatively weak pattern with international gold prices fluctuating in the $2,450-$2,700 per ounce range
Notably, he predicts that following this period, the ongoing central bank gold purchases will attract investment capital, likely leading to a resurgence in gold prices in the latter half of 2025. He estimates that over the next 12-18 months, gold prices could reach between $3,000 and $3,500 per ounce.
In terms of investor strategies, Zheng recommends that market participants keep certain aspects in mindIn the short term, while the Federal Reserve appears likely to slow the pace of rate cuts and real Treasury yields may rise, suppressing immediate investment demand, the long-term outlook remains positive as the U.Scontinues its dual fiscal and monetary easing policy amid rising debt levels, which could weaken the credibility of the dollar and consequently lead to increased global demand for gold and similar hard currencies.
Wang Xinjie also expressed that while demand might wane towards the end of 2024 due to rising prices, it is likely to rebound as gold prices decrease
Both lower bond yields and safe-haven demand could introduce upward pressure on prices, although any geopolitical instability or increasing yields may pose risks to the market.
The Global Market Outlook released by Standard Chartered underscores that gold is expected to rise to approximately $2,900 per ounce over the next 12 months, and it continues to rate precious metals positively relative to other major asset classesContinued strong demand from central banks remains a vital driver for price increases.
Considering asset allocation, Wang Xinjie highlighted that gold has emerged as a preferred hedging tool against risk eventsWhile previously investors have considered various alternatives, such as cryptocurrencies, these come with their own set of limitationsCryptocurrencies may have been viewed as a new hedge; however, their volatility renders them unsuitable as a stable hedge
Meanwhile, as bond yields are likely to decline in a rate-cutting environment, their attractiveness diminishesGold, conversely, can efficiently shield risk assets like stocks from significant downturns, enhancing the overall asset portfolioMoreover, even when risk assets are on an upward trajectory, gold can provide stable allocational value.
For individuals considering entering the gold market, Wang recommends asset allocation in gold amounts generally between 10-15% of their investable assetsThose with a higher risk tolerance or a robust preference for gold may choose to increase their allocation to between 20-25%.
In terms of investment vehicles, Xu Zhiyan suggests that due to gold’s pricing dynamics being closely related to global macroeconomic and geopolitical risks, which require considerable expertise, investors should consider utilizing gold ETFs for their medium to long-term investments