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The price of gold has surged to unprecedented levels in 2024, climbing over 20% to reach a historic peak of more than $2,500 per troy ounce. According to Goldman Sachs Research, this upward trend is far from over. The investment bank predicts gold could hit $2,700 by early 2025, driven by key economic and geopolitical factors, including interest rate cuts by the Federal Reserve and increased gold purchases by emerging market central banks. The precious metal is now positioned as a top commodity for near-term investment growth.
Key drivers behind the surge in gold prices
Goldman Sachs points to three major factors influencing the rise in gold prices:
Central bank purchases: Central banks, particularly in emerging markets, have significantly increased their gold reserves since Russia’s invasion of Ukraine in 2022. This trend is expected to continue, fueled by concerns over potential US financial sanctions and the growing US sovereign debt.
Federal reserve interest rate cuts: As the Federal Reserve cuts interest rates, gold becomes more attractive to investors. Historically, higher interest rates have reduced the appeal of gold because it offers no yield. The anticipated rate cuts are expected to lure Western investors back to the gold market, further boosting demand.
Geopolitical uncertainty: Gold has long been considered a safe haven during times of geopolitical and financial turmoil. Goldman Sachs Research suggests that additional financial sanctions or growing concerns about US debt could push gold prices even higher, with a potential 15% upside in the event of increased sanctions or rising credit-default swap spreads.
Other commodities face challenges
While gold is expected to shine, other commodities may face headwinds due to softening global economic conditions:
Oil: China’s oil demand has slowed, impacted by the growing adoption of electric vehicles and reduced demand for petrochemicals. The US supply of oil has also exceeded expectations, prompting Goldman Sachs to lower its Brent crude price forecast for 2025 to $76 per barrel from an earlier prediction of $82.
Industrial metals: Copper production has been high, but consumption in China has fallen, leading Goldman Sachs to delay its target price of $12,000 per ton for copper until after 2025. Similarly, aluminum forecasts have been adjusted downward due to weaker-than-expected demand.
Natural gas: A significant increase in global liquefied natural gas (LNG) supply is expected starting in 2025, further pushing down energy prices. Goldman Sachs strategists believe lower energy prices are on the horizon as supply continues to outpace demand.
Despite these challenges, Goldman Sachs still sees commodities as essential components of an investment portfolio. Commodities provide a hedge against supply disruptions and inflation. Select industrial metals, particularly those tied to energy security and decarbonization, could experience sharp rallies in the coming years. The Goldman Sachs Commodity Index (GSCI) is expected to return 5% in 2025, down from the 12% return forecasted for 2024.
Gold’s strong performance and its role as a hedge against financial risks make it a top choice for investors looking for stability and growth in a volatile global economy. With factors like central bank purchases, potential geopolitical tensions, and rate cuts favoring the metal, gold is well-positioned to continue its climb into 2025.