Recently, market conditions have been volatile and somewhat boring. Everyone is discussing the relationship between gold and the US dollar, as well as forecasts for gold trends in 2025. This article is merely a personal opinion and does not constitute investment advice; corrections and additions are welcome.
The relationship between gold and the US dollar
When discussing the relationship between gold and the US dollar, several key factors are often mentioned: nominal interest rates, real interest rates, and inflation.
Typically, gold and the US dollar are negatively correlated; when the dollar strengthens, gold prices fall; when the dollar weakens, gold prices rise, but this is not absolute.
Factors influencing gold prices
Gold prices are influenced by multiple factors. For London gold, the current price is about $2915 per ounce, showing a stable upward trend on a daily basis. Since December 2024, gold prices have been steadily rising.
Gold is not just a metal; it is a financial asset with safe-haven properties. Gold prices are influenced by various factors such as US dollar interest rates, inflation levels, economic conditions, and geopolitical risks.
Normally, the nominal interest rate minus the inflation rate gives the real interest rate. When real interest rates are low, gold prices tend to rise. In a low real interest rate environment, bank savings may yield negative returns, prompting many investors to choose to buy gold instead of holding cash. Conversely, if US dollar interest rate hikes lead to rising real interest rates, gold prices typically remain low, as investors prefer cash or other higher-yielding assets.
Additionally, factors such as wars and financial crises are also important reasons driving up gold prices. Recent conflicts in the Middle East, the Russia-Ukraine war, etc., have acted as catalysts for rising gold prices.
In 2024, countries adjusted their holdings of US debt and increased their gold reserves.
China:
• US debt holdings: As of October 2024, China's holdings of US debt have fallen to $760.1 billion, the lowest level since 2009.
• Gold reserves: As of the end of November 2024, China's gold reserves are 2,269 tons, with an increase of 5 tons in a single month.
Japan:
• US debt holdings: As of October 2024, Japan's holdings of US debt have fallen to $110.27 billion.
• Gold reserves: Japan's gold reserves are currently about 846 tons, with no significant increase reported publicly.
Russia:
• US debt holdings: By 2024, Russia has basically emptied its holdings of US debt.
• Gold reserves: Russia continued to increase its gold holdings in 2024, with reserves exceeding 2,400 tons.
India:
• US debt holdings: India's holdings of US debt slightly decreased in 2024.
• Gold reserves: India significantly increased its gold holdings in 2024, with gold reserves exceeding 800 tons.
Brazil:
• US debt holdings: Brazil decreased its holdings of US debt in 2024.
• Gold reserves: Brazil increased its gold holdings by about 40 tons, and its gold reserves have exceeded 130 tons.
Turkey:
• US debt holdings: Turkey significantly reduced its holdings of US debt in 2024.
• Gold reserves: Turkey has increased its gold reserves to nearly 600 tons.
Why did gold not significantly drop after the US dollar interest rate hikes?
Generally, US dollar interest rate hikes put pressure on gold prices. However, in 2024, when the US dollar interest rate reached 5%, gold prices did not significantly drop but continued to rise. This is mainly because:
1. Market expectations: Investors generally believe that the Federal Reserve will cut interest rates, and the market has anticipated this expectation.
2. Gold's safe-haven attributes: Due to global economic uncertainties (such as the Russia-Ukraine war, financial system risks, etc.), the demand for gold as a safe-haven asset remains strong.
3. Inflation pressures: Although nominal interest rates are rising, the high global inflation environment still exists, and real interest rates remain low, driving demand for gold.
By the end of 2024, the Federal Reserve gradually signaled interest rate cuts, which strengthened expectations for rising gold prices. Therefore, starting in December 2024, gold prices rose steadily.
Forecast for gold trends in 2025
Based on the current economic situation, gold may continue to rise. There are several reasons:
• US dollar interest rates remain relatively high: However, the Federal Reserve may continue to take interest rate cuts in 2025 to ease its debt burden.
• Inflation pressures: Although nominal interest rates are rising, inflation remains high, and real interest rates are in negative territory, supporting demand for gold.
• Risks in the global economy and financial system: Including geopolitical issues, financial crises, etc., could drive gold prices higher.
Summary
Overall, gold prices in 2025 may still be on an upward trend, especially in the context of global economic uncertainty and low real interest rates. Although the dollar has not sharply depreciated, its relatively weak performance and the expected adjustments after interest rate hikes have continued to attract investors' attention to gold.
The trend of gold prices ultimately depends on US dollar policy, inflation levels, and the global economic environment.
👉 How do you view gold? Everyone is welcome to discuss!