Gold and cryptocurrencies share certain characteristics, one of the most obvious being that they are non-productive assets. In that case, then, what drives their price, and why did they rise so much in 2024?
If we look at gold, its price is influenced by supply and demand. Strong physical demand, driven largely by central banks’ purchases of gold bars and coins, alongside the start of a cycle of interest rate cuts, has propelled gold prices to record highs this year. Gold reached a peak of almost USD 2,800/ounce in late October (a gain of over 30% year-to-date). However, prices have since retreated due to the recent strength of the US dollar, against the backdrop of physical demand beginning to show signs of weakening.
The World Gold Council reported a year-on-year decrease in demand across most categories in the third quarter of 2024, including central bank purchases (-49%), bars and coins (-9%), and jewellery (-7%). Similarly, speculative positions in derivatives, which had previously been rather high, have also started to decrease. On the other hand, global ETF inflows, which turned positive again in May, could remain in positive territory if interest rates continue to fall from this point onwards.
As a result, the price of gold may have more limited upside potential during the first quarter of 2025. That said, it can still serve as a safe haven asset amid any volatility caused by President Trump’s statements on geopolitical matters. However, the possibility of a stronger dollar—due to tariff risks, the consequent rise in US government bond yields and the country’s fiscal policy—could act as a headwind for gold prices. It is also increasingly evident that physical demand plays a major role in determining its price.
Date of report: January 8th 2025