Synopsis:

Gold's rally has cooled after hitting record highs, with prices expected to stabilize around $2,700/oz in Q1 2025. Strong physical demand and rate cuts have been key drivers, but signs of weakening demand and macroeconomic volatility may cap further gains.

Key Points:

• Recent Rally and Current Drivers:

  • Gold prices peaked at $2,784/oz in October, driven by strong physical demand and expectations of a rate-cutting cycle.
  • Central bank and bar/coin purchases supported prices but showed signs of weakening demand in Q3.

• Demand Trends and Positioning:

  • World Gold Council reported YoY demand declines in central bank (-49%), bar and coin (-9%), and jewelry (-7%) categories.
  • Mine and recycling supply responded to higher prices, while long speculative positioning has begun to reduce.

• ETF Flows and Volatility:

  • Global ETF flows turned positive in May and could remain supportive if rates and yields fall further.
  • Volatility is expected to persist, driven by post-US election uncertainty and China policy developments.

• Price Outlook:

  • Morgan Stanley forecasts gold prices to average $2,700/oz in Q1 2025, with limited room for upside due to slowing physical demand and macro uncertainties.

Conclusion:

Gold’s strong 2024 rally may be reaching its peak, with prices stabilizing at $2,700/oz in Q1 2025. While physical demand is waning, falling rates and macro volatility could support prices at elevated levels, albeit with less room for further significant gains.