Gold has shone on the financial markets in 2024. Is investing in gold still relevant after such a rally? Is it time to diversify your exposure to precious metals? What is its potential for appreciation for 2025?
Gold in 2024
Over the past 12 months (through November), the price of an ounce of gold on international markets has increased from around USD 1 900 to over USD 2 650 for a gain of almost 40%.
There are several major factors driving gold prices higher:
- Fears of inflation have led investors to use gold as a hedge against the risk of currency devaluation. In 2024, central banks bought 694 tonnes of gold, according to data from the World Gold Council, diversifying their holdings away from the US dollar.
- President-elect Trump’s purported policies are seen as likely to weaken emerging market currencies, leading some central banks to spend US dollar reserves to defend their currencies from capital outflows and prevent excessive weakening.
- Geopolitical tensions in Ukraine and the Middle East have reinforced gold’s role as a safe-haven asset.
- Central banks, particularly those in emerging markets, have maintained their pace of gold purchases – initiated in February 2022 – to diversify their reserves. While China’s purchases slowed in the second quarter, India accelerated its buying to become the third largest buyer between January-September 2024. More surprisingly, the National Bank of Poland (NBP) has led central bank buying since early 2024 with 61 tonnes purchased. With now 420 tonnes of gold reserves, Poland has doubled its allocation in three years. It now holds more gold than Portugal, the United Kingdom, or Spain. Governor Adam Glapinski aims to increase gold’s share of the NBP’s reserves to reach a level of 20%.
- Central bank purchases seem be motivated not just by an objective of gradually diversifying reserve holdings away from US dollar dominance despite the US’s ‘economic exceptionalism’. There is also interest in exploring alternatives to the US dollar-based payments system that has been at the core of the international financial system for around 80 years.
