The gold market has performed strongly in 2024, generating significant returns for investors. Expectations indicate that gold will continue to perform favourably in the New Year.
The data reveals that gold generated returns of approximately 27% in 2024.
According to MUFG Bank, Japan’s largest banking institution and one of the world’s leading financial institutions, gold’s positive trajectory is expected to continue through 2025. The report identifies two key factors contributing to this trend: the need for protection against geopolitical risks and the increasing demand from central banks in emerging markets.
The MUFG Commodity Outlook 2025 report states: “We strongly believe that the bull market in gold will continue due to a combination of ‘fear’ (as a hedge against geopolitical uncertainties) and ‘wealth’ (from emerging market central banks).
In addition, the report highlights the growing interest from financial institutions, investors and speculators, driven by the expected interest rate cuts by the US Federal Reserve, US policy uncertainties and escalating geopolitical tensions, reinforcing the favourable outlook for gold.
In light of the current global uncertainties, central banks are increasing their gold holdings, reinforcing gold’s reputation as a safe investment.
Gold has consistently been among the best-performing assets in recent years, except in 2021, and has posted positive closes in the US market since 2016.
In contrast, the MUFG report takes a neutral to negative stance on the energy sector. This suggests that potential tariffs stemming from former President Trump’s policies, as well as geopolitical uncertainties, are hurting this outlook.
In addition, the report indicates that oil prices could decline in 2025, due to expected increases in supply from OPEC+ and other producers, which could shift the market from a shortage to a surplus. In addition, tariffs, as well as China’s shift to electric vehicles and natural gas trucks, could contribute to reducing demand.
For base metals, the outlook remains neutral to positive.
For agricultural commodities, the report notes that U.S. trade policy, foreign relations, geopolitical considerations, and the impacts of La Niña are likely to lead to greater price volatility. However, lower inventory levels should mitigate some price risks.
Historically, commodities have served as an effective hedge against inflation, as physical assets tend to perform favourably during inflationary periods, while stock and bond returns are often challenging.
Image Source: The Economic Times
