Outlook
30 April, 2025
- Investment to continue to gather pace on near-term stagflation risks, medium-term recession risk,1 elevated stock-bond correlations, an expected acceleration in US deficits,2 and continued geopolitical tensions
- Jewellery to be weaker than expected on lower growth and higher than anticipated prices. Any stronger jewellery recycling response may be tempered by low near-market stocks, trade-ins, old-gold collateral activity, and little distress-driven selling
- Technology to slow slightly from waning global growth, but to remain within a healthy range from AI-related demand
- Bar and coin buying to stay resilient rather than strong as geopolitical risk motives are tempered by sensitivity to surging prices
- Central banks to repeat buying close to the range seen over the past three years on continued elevated trade-related risks and uncertainty premia in US assets
- Mine supply to stay close to its 2024 record level. And while recycling could be expected to respond to higher prices, it is likely to be kept in check by the factors mentioned above.
Investment
The correlation between equities and bonds – a pillar of asset allocation – is likely to remain high and therefore undermine the hedging potential of bonds. Research has found that it is inflation volatility rather than the absolute level of inflation that is the key driver of this relationship.3 The level of inflation across much of the West may be in a receding trend, but constant shifts in tariff tensions are likely to keep the market and policy makers on tenterhooks with regard to possible inflationary spikes4 – particularly as general goods inventories are run down and new orders, which will be subject to tariffs, are completed. Such concerns are likely to keep the stock-bond correlation elevated, reinforcing the benefits of investment into an uncorrelated asset such as gold.
This trend is likely to be seen across gold-backed ETFs as well as in the OTC segment of demand. Intermittently, futures demand will act as a brake, on or accelerant to, prices. Net long exposure has reduced in Q1, leaving a little more capacity to add to positions in Q2 and beyond.
Bar and coin demand is also likely to stay resilient as we posited last quarter. While at times a price sensitive source of demand, a lack of alternatives for some investors, widespread media attention and elevated economic concerns will be more important drivers going forward, in our view.
Naturally, this perfect storm for gold presents risks as well as opportunities. While there is little evidence of a saturated investment market, some flow reversals could be sparked by periods of relief for risk assets, lulls in geopolitical wrangling and periods of profit taking, but not to the extent that they undermine the positive trend.
Jewellery demand turned out to be weaker than we had anticipated in Q1 given gold’s strong price performance. Yet even ex-post analysis suggests jewellery has been weaker than our model predicted given price, income and currency dynamics. It is possible that in some regions, the quasi-investment nature of gold jewellery was eschewed in favour of bars and coins – with lower purchase margins and typically great purity of such products trumping the store-of-value and aesthetics of gold jewellery in the very elevated risk environment. The technology sector is expected to benefit from AI-related demand but pressured by slowing growth and high prices, although forecasting technology demand is made all the more difficult by continued tariff uncertainty.
Central banks
The diversification of central bank reserves continues with a reduction in US assets, albeit with a slight uptick in February.5 We don’t see an end to this narrative unless there is a material shift in geopolitical tensions. The IMF has downgraded growth prospects in the US more than in other major economies, citing policy uncertainty. This suggests that other countries may have leverage in negotiations, although these typically last months and years, not weeks. Hence, we don’t expect any near-term resolutions.
What may cause a slower pace of buying is if target allocations, where they exist, are reached more quickly – given both strong prices and/or slowing reserves’ growth as global trade ebbs. Our expectation is that this won’t happen quickly and that another strong year of buying, similar to the previous three years, is likely. We are instead reflecting any potential slowdown through a wider uncertainty bar around our central estimate.
Supply
We anticipate that unprecedented cash generation will allow announced development plans to be advanced and mine production to stay strong.6 Ghana, Chile and Canada have healthy production pipelines. But disruptions in Turkey and Russia, and cutbacks in Australia highlight the potentially volatile nature of mine production in certain areas. Hedging activity is expected to remain negligible.
Recycling posted a surprising decline, showing a weaker response to price than it has done in the past. There are a few likely reasons for this: consumer preferring to trade in old gold for new rather than sell; an increase in gold loans, which use gold jewellery as collateral and avoid or defer selling back; and low near-market supply. Furthermore, an absence of sufficient economic distress may reduce recycling even in response to very strong price gains as consumers hope to sell later at even higher prices.
