January 3, 2025 - 7:00am
After the global instability which characterised 2024, there is widespread hope that this coming year will provide some much-needed respite from chaos. Investors seem to disagree, though, at least if we look at the asset everyone is talking about this January: gold. The consensus seems to be that gold will be a strong performer in 2025 just as it was in 2024 â which, implicitly, means investors are betting that many more global changes are afoot.
Gold started 2024 at $2046 per ounce. On 1 January this year, it was priced at $2622 â an increase of just over 28%. For context, in that same period the S&P500 index only saw total returns of around 25%. Even in a good year for the stock market, those who parked their money in gold found themselves laughing all the way to the bank.
Higher gold in 2025 is nothing short of a consensus trade. JP Morgan, Citibank and Goldman Sachs all have a price target of $3000, with commodities analysts citing lower interest rates, momentum, central bank-buying, and geopolitical turmoil. But, since the start of 2023, only the last two of these reasons have really driven the gold price. The developments are linked: central banks are buying because the geopolitical climate is forcing them to diversify out of dollars, and gold has become a favourite means to do so.
Itâs not just central banks which are bullish. Asia Timesâs newsletter Global Risk-Reward Monitor, which is widely followed in financial circles, is tipping gold to reach $10,000 an ounce by the end of the decade. While investment banks are looking at annual trends in gold demand, deeper analysts are looking at potentially major changes in the global trading system in the coming years.
On its face, Asia Timesâs argument is simple enough: since the seizure of Russian assets in February 2022, countries around the world are moving away from using the US dollar as a reserve currency. Given that the financial markets of these countries are not very well-developed, it is unlikely that they will be able to use their own currencies to fully settle trade with one another by 2030. But there is one time-tested trade settlement mechanism these countries could use: gold.
The problem is that there is simply not enough of the resource currently in existence to settle these trade balances. Or, rather, there is not enough gold to settle these trade balances at the current gold price. If the price adjusts, there will be plenty of gold to go around and the authors at Global Risk-Reward Monitor reckon that around $10,000 would do the trick.
What will trigger this move to trade settlement in gold? The newsletter highlights one possibility: the collapse of a bubble in American tech stocks. In the past, America financed its trade deficit mainly by selling Government bonds to its trading partners. While these bonds are still a key component of international borrowing by the United States, around 2018-19 they stopped being the most important source of external borrowing.
For the past seven or eight years, the US has been financing its trade deficit by selling tech stocks to the rest of the world in return for goods and services. If the price of these stocks crashed, the foreign investments would be severely damaged. At that point, investors might start to shy away from the dollar, while any countries already looking for alternatives would be motivated to hurry up.
We have seen something like this before. At the height of the Nineties tech stock bubble, the US financed its trade deficit using international tech stock sales. In the early-2000s, when the bubble burst, international investors could complain all they wanted but there truly was no alternative to the dollar. That is not the world we live in today. Should gold rise to $10,000 an ounce by 2030, those who have argued that the best way to judge the price of the dollar is by the dollar price of gold will finally be vindicated.
Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics
philippilk
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeSo the “barbarous relic” is trusted more than pieces of paper which a government can print at will. This can hardly be a surprise.
The price of gold has been manipulated down for years, but that seems to have stopped working.
How exactly is this downward manipulation of the gold price working ? And why has it now “stopped working” ? What changed ?
As I understand it the price is manipulated by issuing “gold contracts” ie contracts for the purchase of gold. But as with currencies more are issued than the amount of gold. They are never “cashed” and are a mere financial instrument. Hence the decline in the gold price. It is some time since I read the explanation so the abĂČve is only as I understood it.
As pointed out by the comment by Santiago Excilio, the world situation has changed considerably.
The premise of this article is incorrect. The gold price is not going to affect the dollar. First, and most importantly, the price of gold is simply an expression of the supply of and the confidence (or otherwise) in the worlds fiat currencies. As the worlds money supply increases so does the price of gold, because there is a relatively fixed supply of the latter, whilst the former is essentially elastic. Secondly, to the the extent that people have faith in the underlying robustness of those fiat currencies the price of gold will reflect that confidence. This has been steadily declining over the last several decades as national debts have risen, growth rates have declined and various financial crises have dampened confidence in governments as they printed money, and the price of gold has soared. Lastly, the dollars supremacy as reserve currency is underwritten by the US economy and military strength, which relative to any other country is still pretty unassailable, and failing that the US also has the worlds largest gold reserves buy a factor of nearly three, so even if the fiat currencies continue their decline they will be better positioned than anyone else.
But has the amount of gold held by the USA been audited recently? I seem to recall that the Fed won’t allow any audit of its gold stocks.
It should be worrying that money has this strong tendency to flow into non-productive assets. Whether it’s gold or existing real estate, or even stocks with high p/e ratios. In the end it doesn’t produce real wealth now. Perhaps even on the contrary. What I think should actually happen is a second (or third) Bretton Woods. The first one had the intention to stabilize the world economy and prevent another world war, also by making the world a little bit more fair. Now that those ideals have completely deteriorated and we are starting to see the results, the world should consider to sit down again. Perhaps finally introduce that Bancor instead of gold or the dollar.
But what is money? I think you actually mean wealth ie “value”. And it flows into assets which are likely to hold “value” and at best also produce an income (“yield”)…real property usually does precisely that.
In times of uncertainty (and inflation as now…actually stagflation really) those with wealth seek to protect that and care less about the income which will, in any event, be paid in devaluing currency.
The USA won’t agree to the US $ not being the “reserve” currency because the reserve currency has “the exorbitant privilege” of lowering borrowing costs and insulating it from currency crises.
Once that privilege is gone the currency becomes like any other.
Not really. People have always wanted to save money in some form or other. Back in the day, they saved in gold coins. For sure they may have invested some of those coins in a neighbourâs new venture or suchlike, but the prime motivator was saving for a ârainy dayâ, or the future.
You canât expect people to risk all their savings in the stockmarket, which is effectively lending your money out to businesses. People save for security, and at the moment more people are figuring gold is where the security is, so the price is going up.
The West is completely asleep at the wheel with regards their so called World Order and it’s fiscal Hegomony of The World Bank and the IMF
The USA alone derives on average
6 to 7 % of it’s Annual GDP for doing nothing
Here’s big clues as to how the Teutonic plates of Global Economic ‘ Financial and Politics
Moving fast now away from the So called World Order
China in 2024 on average each month purchased 30 tonnes of gold via Switzerland and using
US treasury $ Bonds to pay for the gold
BRICS and BRI are now a unstoppable force
The USA whole fiscal system is literally a Ponzi scheme and shall
Collapse under its own weight
One may consider the $ as none other than “A Paper Tiger ”
The only tooth in its Jaw’s are nuclear weapons
But due to the Iron clad Relationship between Russia and China The Paper Tigers tooth is rather weak