Gold prices, which at the end of October were rewriting historical highs and were above $2,800 per troy ounce, fell sharply after Donald Trump’s victory in the US presidential election. The precious metal’s performance in the two days following the Republican candidate’s victory was the worst in at least 13 US election cycles, according to Deutsche Bank. Gold fell 9 per cent from its October high to around $2,550 before making a gradual recovery. Today it sits around $2,670 an ounce. What are the reasons for gold’s price spikes and what is the outlook for gold for the rest of this year and next year?
Why gold fell
Immediately after the US election, experts noted that the fall in gold was due to the rise in the dollar, which on the first day showed the biggest increase against major currencies since 2020. This made raw materials priced in US dollars more expensive for buyers. In addition, Trump is associated with the hope of defusing geopolitical tensions, and gold is considered a safe-haven asset in which investors ‘sit back’ in times of great risks.
The recent decline in gold prices is more likely to fit into a healthy correction after a fairly long period of growth, said Pavel Paevsky, head of credit analysis and macroeconomics at RSHB Asset Management, in a commentary for Finam.
‘The story of Donald Trump’s victory in the U.S. presidential election is a symbolic pretext for such a correction, which at the time of the election results made investors briefly believe in the imminent end of the Russian-Ukrainian conflict and the reduction of geopolitical tension in the world as a whole’, – the expert believes. He recalled that before the decline in gold quotes reached $ 2801 per troy ounce, the growth at the peak was 35% since the beginning of the year.
Growth factors
Paevsky believes that with a high probability by the end of this year, gold could rewrite its historical price highs and by the end of December it could be firmly entrenched in the $2,800-$2,900 price range. ‘This movement will be facilitated by unabated geopolitical tensions, investments in precious metals ETFs, continued gold purchases by central banks and growing demand from the automotive industry for electric cars. And the last factor, in our opinion, will have positive dynamics in the medium term’, – the expert believes.
Analyst ‘Finam’ Nikolai Dudchenko also believes that the further prospect of growth in the price of gold is still preserved. To the main factors of growth he refers to the situation with supply and demand. Thus, according to the latest report of the World Gold Council (WGC), the demand for gold continues to grow. In Q3, it reached 1313 tonnes. The reason was the increase in demand from ETFs, which continued to increase in October this year, as well as demand from central banks, which slowed down slightly in relation to 2022 and 2023, but still remains elevated.
Gold production is also increasing and totalled 989.8 tonnes in Q3. However, as Dudchenko notes, there are certain risks associated with the growth of costs of gold mining companies. Thus, in the latest review Kept reported that the weighted average total cash costs (TCC) in 2023 reached $944 per troy ounce. Average all-in sustaining costs (AISC), which include, for example, exploration costs, sustaining CAPEX, corporate overhead allocation and others, reached $1323 per ounce.
WGC also recognises the rising costs, reporting that total sustaining costs increased 6% year-on-year to a record quarterly high of $1388 per ounce.
The tense geopolitical environment is also a contributing factor to gold prices, the Finam analyst adds. WGC in its research provides a correlation between the so-called Geopolitical Risk Index (GPR) and the price of gold. The correlation is direct: a 100 bp increase in the Geopolitical Risk Index, all other things being equal, has a positive impact on gold yields by about 2.5%. In October 2024, the index started to grow again and its value currently stands at 98.9 points, Dudchenko notes.
According to the latest risk report from BlackRock, the company believes the likelihood of the Middle East conflict continuing into next year is high. ‘Indeed, we have yet to see strong signs of de-escalation of the situation, and with Trump’s victory, Israeli Prime Minister Benjamin Netanyahu’s position could strengthen significantly. Trump has also made some harsh and aggressive statements towards Iran. Accordingly, the conflict is likely to continue. This will contribute to the growth of allocation to protective assets, including gold’, – believes Dudchenko.
In the baseline scenario, the expert expects that the average price of gold in the current year will be closer to the level of $2680-2685 per troy ounce (to date, the average price is about $2675 per troy ounce). Next year, the average price of gold may also grow and be in the range of $2700-2750 per ounce, the expert predicts.
Risk factors
The analyst of Finam also cites the risks that may affect the price. He reminds that in the current year, the U.S. Federal Reserve System has taken the course of easing monetary policy. During the current year, the key rate was reduced twice: on 18 September, the Fed reduced the rate immediately by 50 bp, and on 7 November followed by another 25 bp reduction.
‘Meanwhile, the policy of the new US president may again be protectionist in nature. And on top of that, Trump may return to tax reform. Not so long ago, he promised that the corporate tax will be reduced to 15% for companies whose production facilities are located in the US. He also promised to stop the double taxation system, that is, to abolish income tax for Americans living abroad. If this is indeed realised, it is clear that the budget deficit could increase substantially and inflation would turn upwards again, making further monetary stimulus impossible. This could lead to a return of the US dollar to the growth trajectory and restrain the growth of gold prices,’ Dudchenko warned.
He also points out that the gold price has deviated quite significantly from its average value. This means that medium-term overboughtness removal and price correction may follow. ‘Accordingly, in an alternative scenario, we do consider the possibility of a gold price correction early next year. In this case, we do not rule out a return of the gold price to the $2400-2500 per ounce range,’ Dudchenko concluded.
Foreign banks are optimistic
Foreign banks have recently given positive forecasts on gold for 2025. In particular, Goldman Sachs analysts have confirmed the forecast of growth in the cost of gold to new highs of $3000 per ounce by the end of 2025. According to their estimates, the structural factor of gold growth will be high demand from central banks, while the cyclical rise will be due to the inflow of funds into exchange-traded investment funds as the Fed cuts rates. Goldman Sachs experts also draw attention to the persistence of geopolitical tensions in the world, which will push market participants to buy protective assets.
In turn, analysts of the holding UBS forecast growth in gold prices by the end of 2025 to $2900. As noted by Bloomberg, UBS experts expect to maintain high demand for the metal on the part of the world Central Bank. In addition, in their opinion, the growth of the dollar index will lead to the fact that the U.S. Federal Reserve System will be forced to increase fiscal stimulus, which will also have a positive impact on gold. By the end of 2026, UBS analysts predict that the price of gold will be $2950 per ounce.
Audit and consulting firm Kept predicts that the average gold price in 2025 will be $2,527 per troy ounce, but will then fall to $2,494 in 2026, $2,398 in 2027 and $2,349 in 2028.
Experts of the company note in the review that one of the key stimuli for the growth of the price of gold remains the continuing escalation of military and geopolitical tensions in the Middle East. States and individuals in an attempt to preserve their assets and minimise inflation risks find salvation in ‘good old’ gold. The factor, which is also likely to fuel demand for gold for some time, even despite the current high prices, is the tangible reduction in July of this year by India (the second largest gold consuming country in the world after China) of import duty on gold from 15% to 6%.
Further prospects will depend on the geopolitical situation. ‘Due to current events, analysts’ consensus forecast for the gold price has been revised upwards to $2.5 thousand per troy ounce in the medium term with a further tendency for the price to correct downwards if the situation in the world stabilises. At the same time, a number of experts suggest that if the global geopolitical situation worsens, there is a good chance that the gold price may go up further, crossing the level of $3,000 per troy ounce, after which new price support levels will be fixed and prospects for further growth will open up,’ the Kept review emphasises.
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