Despite the Fed’s hawkish signal, analysts see support for gold in 2025

The US Federal Reserve unexpectedly shocked the markets restrictive forecasts The forecast for interest rates next year is likely to deal a blow to gold prices – but analysts told CNBC that they still see solid support for the precious metal in 2025.

The Fed’s “dot plot,” a measure of policymakers’ outlook, now suggests the Fed will cut interest rates twice in 2025, compared with four quarter-point cuts previously expected in September, when Concerns about the weak labor market were at the forefront. Spirit. The central bank’s big concern now is whether new President Donald Trump’s policies – particularly his threat of sweeping trade tariffs – will prove inflationary.

The US dollars Following the Fed’s news on Wednesday, the dollar index jumped, with the dollar index hitting a two-year high, as the potential for higher interest rates should boost the currency. Meanwhile, gold prices – which have enjoyed a stunning rally this year, hitting record highs – fell 2% to their lowest level in a month.

Gold is largely denominated in dollars, with a stronger U.S. dollar weighing on prices for the precious metal. Higher interest rates and higher yields on U.S. Treasury bonds also traditionally increase competition for the safe haven and dampen demand for gold.

But these relationships have been “up and down” in recent years as broader factors such as demand for gold from central banks – particularly China – outweighed moves in the dollar and the U.S. Treasury, according to Hamad Hussein, commodities economist at Capital Economy.

“Trump’s tariff proposals and a more hawkish Fed actually increase downside risk for gold. All other things being equal, this would lead to lower gold prices. But we expect non-traditional factors to be stronger next year,” he told CNBC by phone.

According to Hussein, China plays the biggest role in this. The central bank of the world’s second-largest economy has resumed gold purchases, while a weak macroeconomic outlook – particularly amid a potentially escalating US trade war – is boosting safe-haven demand among local investors. Overall, since the Russia-Ukraine war broke out in 2022, central banks from Poland to India have also increasingly supported gold purchases, he added.

“As a result, gold prices are expected to remain close to their record highs next year,” Hussein said.

There has been debate for years about whether Cryptocurrencies like Bitcoin could replace gold as a leading “store of value” asset, with skeptics arguing that the crypto assets lack the stability of the metal.

Both theoretically have their appeal as a refuge from larger geopolitical swings and market volatility, although this is not always true with crypto prices.

Geopolitical tensions in 2025, central banks’ diversification of foreign reserves and the fact that interest rates are likely to fall further are creating a “perfect storm for gold,” said Ewa Manthey, commodities strategist at ING.

“Despite the decline in gold prices following yesterday’s Fed statement, we believe gold’s positive momentum will continue in the short to medium term,” Manthey said by email.

ING expects gold prices to average $2,760 per ounce in 2025, from the current $2,595.

However, Manthey stressed that their optimistic stance is in the short to medium term.

“Longer term, Trump’s proposed actions – including tariffs and tighter immigration controls, which are inflationary in nature – will limit the Federal Reserve’s interest rate cuts. A stronger U.S. dollar and tighter monetary policy could ultimately create some headwinds for gold,” she said.