The period since November 2024 has shown the following cycle when it comes to Gold prices - Investors' expectations related to US Government's stance and the impact of the same on the price of Gold. Growth data, inflation data of US, US Fed's monetary policy decision expectations given the same and the impact of the same on the price of Gold.
In the first cycle, the peaceful conclusion of US elections resulted in a slight dip in Gold prices given some safe haven investment had factored in some election turbulence. Subsequently, US Fed's hawkish stance mentioning the reduction of number of interest cuts in 2025 from 4 to 2, resulted in further reduction in Gold prices as bond yields went up.
In the second cycle starting from January 2025, the flamboyant announcements of tariffs across the board from the US Government reversed the trend and started an accelerated bull run as Gold touched new Highs crossing $2960 per oz. As we are reaching the end of February, investors are awaiting data on Personal Consumption Expenditure (PCE) Index from US Bureau of Economic Analysis. This index will give a view on the inflation in US. The market is factoring that this data would indicate inflation being sticky which might mean US Fed may delay further interest rate cuts. This would imply bonds would have higher yields and hence Gold would be less preferred compared to bonds and hence Gold prices have seen a dip over the last week of February.
Some experts suggest these kind of dips are buying opportunities for longer term investors as the longer term trend seems to be bullish given the concerns on trade wars, turbulences in Geopolitics.
You can read a balanced perspective on Gold's current rally here and a commentary on what to expect of SIlver, Gold, Platinum and Palladium here. Let us know your thoughts in comments.
The overall direction of Gold's performance in 2025 seems to be in line with the expectations at the beginning of the year - a continued sense of turbulence in the Geopolitics marked by trade wars indicate a continued rally of Gold as in 2024. However, it is hard to predict whether the returns in 2025 would match those in 2024.
The contrarian view of certain experts that there is a lot of froth in Gold's price, if true, is yet to reflect in the opinion of investors. Market seems to be still providing a narrative that the post-COVID period and the subsequent Geopolitical incidents are turbulent enough justifying reliance on time-tested traditional instrument such as Gold.
In the face of these ongoing fluctuations, it’s crucial to stay informed and adapt investment strategies accordingly. Monitoring global economic indicators and being aware of geopolitical developments will help investors navigate the volatile landscape. Additionally, diversifying investments across various asset classes can provide a more balanced approach to managing risk and optimizing returns.
Another important aspect to consider is the role of technological advancements and their impact on the gold market. Innovations in mining techniques, as well as the increasing use of gold in technology, particularly in electronics and renewable energy, could influence gold prices. Staying updated on these trends can provide valuable insights into potential market shifts.
Moreover, it's essential to keep an eye on the actions of major central banks around the world. Their policies and decisions can have a significant impact on gold prices. For instance, if other central banks follow a similar path to the US Fed in terms of interest rate adjustments, it could either support or counteract the trends observed in the US gold market.
Finally, the psychological aspect of investing in gold should not be underestimated. Investor sentiment can play a significant role in driving gold prices. Understanding the factors that influence sentiment, such as fear of economic downturns or optimism about growth prospects, can help investors make more informed decisions.
You, as an individual investor should equip yourself with information related to the global events and form your own stand on the overall long term direction of Gold price. Definitely seek an expert financial advisor's opinion. An overall approach of asset allocation deciding percentage allocation across equities, bonds, Gold, other Precious Metals, Real Estate is an advised one and the allocation percentages should match your own risk profile and targeted towards your personal financial goals and timelines.
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