Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
What’s next as gold hits our USD 3,300 target
Ole Hansen
Head of Commodity Strategy
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Key points:
- An impressive 25% year-to-date rally has seen the spot gold price reach our 2025 target of USD 3,300 well ahead of schedule, raising the question of where do we go next.
- In the short to medium term, a combination of heightened global economic tensions, the risk of stagflation, and a weaker dollar may continue to support bullion.
- While gold continues to reach fresh all-time highs, silver has struggled to keep up, in the process lifting its relative cheapness compared to where we have seen it for the past three years.
- We raise our 2025 forecast for gold to USD 3,500 per ounce, while silver, despite its industrious exposure and current recession worries, may still reclaim some lost ground, rising towards USD 40.
An impressive 25% year-to-date rally has seen the spot gold price reach our 2025 target of USD 3,300 well ahead of schedule, raising the question of where do we go next? Gold has been on a tear since Q4 2022 when a triple bottom around USD 1,620 signalled the confirmation of a solid price floor following three years of sideways action. It would take another year until December 2023 before technical resistance around USD 2,075 was finally broken, with the trigger being heightened geopolitical tensions as the Israel-Hamas war started, adding to already strong demand from central banks seeking to diversify and de-dollarise their reserves.
From the below table, it is also clear that gold’s strong performance has to a great extent been driven by USD weakness, most notably against the three current go-to currencies of EUR, JPY, and CHF, leading to more modest gains for investors in those regions and countries, while investors in China and India, two of the world’s biggest markets for retail demand, have seen currency moves that justify an increased exposure to gold as a hedge against local currency weakness.
In the past two years, that underlying demand from central banks combined with the Federal Reserve cutting rates, increased focus on rising government debt piles, and governments employing sanctions, export controls, tariffs, and investment restrictions have all added to gold’s appeal, and recently given additional support from the risk of recession and inflation driven by US trade tariffs against friends and foes. In this context, it's worth keeping in mind that, unlike sovereign bonds—which can get tangled up in politics—or currencies, which shift with trade ties and alliances, gold and other precious metals are politically neutral. They're recognised everywhere and aren't tied to any one country’s credit rating. That’s a big part of why investors—whether private, institutional, or central banks—keep turning to gold, even at these record levels.
In the short to medium term, a combination of heightened global economic tensions, the risk of stagflation—a combination of lower employment, growth, and rising inflation—a weaker dollar, may, in our opinion, continue to support bullion, and to a certain extent also silver given its relative cheapness following an early April slump. Adding to this is a market that is now aggressively positioning for the Fed to deliver more cuts this year—at current count more than 75 basis points of easing by year-end—and not least continued demand from central banks and high-net-worth individuals, especially in Asia, looking to reduce or hedge their exposure to US government bonds and the dollar.
While gold has broken above USD 3,300 to reach another all-time high, silver has yet to challenge the October 2024 high at USD 34.90, especially after the semi-industrious metal suffered an 18% top-to-bottom correction in the days that followed Trump’s tariff attack on 3 April. However, looking at the relative strength between gold and silver, we find that the gold-silver ratio - insert below - in the past three years averaged around 85, even during a period where gold was supported by record amounts of central bank buying.
It raises the question of whether silver’s 50% exposure to industrial appliances and recession angst justifies its relative cheapness with the current ratio around 100. It is our belief that it doesn’t for several reasons: 1) silver’s industrial use towards the energy transition is unlikely to suffer a major setback despite a recession, 2) gold’s rally creating a natural interest to buy its ‘cheaper’ sibling, and 3) silver is projected to experience another supply deficit in 2025, marking the fifth consecutive year of such shortfalls.
With all the mentioned developments in mind, we raise our 2025 forecast for gold to USD 3,500 per ounce, while silver, given its industrious exposure and current recession worries, may struggle to materially outperform gold as we had previously forecast. Instead, based on the XAU/XAG ratio returning towards 90 from above 100 currently, we see silver eventually making it higher towards USD 40.
Gold supportive developments - in brief
US Fed Funds rate expectations: Market participants closely watch interest rate expectations set by the Federal Reserve, as they heavily influence the attractiveness of gold. Currently, the futures market is pricing in the possibility of a 75–100 basis point rate cut before year-end, suggesting a more accommodative monetary policy. Lower interest rates reduce the opportunity cost of holding gold (which doesn’t pay interest), thereby supporting its price.
Investment demand for “paper” gold through futures and exchange-traded funds (ETFs): The demand for gold-backed financial products depends on technical market factors, such as price momentum, as well as macroeconomic indicators. In addition, a key factor for investors in ETFs is the cost of holding a non-yielding assets like gold, with the prospect for lower funding cost and recession worries boosting demand. Current known holdings in bullion-backed ETFs stands at 2773 tons, up 269 tons from last May but still well below the 2020 record peak at 3453 tons.
Rising US inflation expectations: Investors often turn to gold as a hedge against inflation. Recently, falling real yields (nominal yields minus inflation expectations) across the US Treasury yield curve have signaled growing concerns about future inflation. As inflation expectations rise, the real return on fixed-income assets decreases, increasing the relative appeal of gold.
Geopolitical risks: Global instability tends to push investors toward safe-haven assets like gold. A recent correlation between defense stocks and gold suggests that as geopolitical tensions rise—such as conflicts, wars, or diplomatic strains—investors seek safety in gold, thereby supporting its price. In addition, the current trade war adds downside risks to growth while lifting the geopolitical temperature, especially between the US and China, the world's two biggest economies.
Central bank demand amid continued focus on reducing dependency on the USD: A growing number of central banks are diversifying their reserves away from the US dollar, often turning to gold as a neutral reserve asset. Notably, China, India, Turkey, and Russia have been leading this trend. In the last three years to 2024, central banks bought more than 1,000 tons in each year, a process that looks set to continue in 2025 and beyond, thereby underpinning the market as supply is being removed from the market.
Recent commodity articles:
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10 April 2025: YouTube Interview: Gold, silver, copper, oil - prices, supply, demand in 2025
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7 April 2025: COT on Forex and Commodities - April 7 2025
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1 Feb 2025: YouTube: Joining Kevin Muir on The Market Huddle podcast
Podcasts that include commodities focus:
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18 Mch 2025: US market found support, but how durable will it be?
14 Mch 2025: Is silver set to shoot the lights out?
10 Mch 2025: US un-exceptionalism is the theme
7 Mch 2025: US bear market risks ratchet higher. EUR train has left the station
4 March 2025: Are we on the verge of a big whoosh?
25 Feb 2025: Meltdown risks are rising. What to watch next
18 Feb 2025: Europe is on fire
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3 Feb 2025: If new Trump tariffs stick, markets have only just begun to react
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