Economic and geopolitical risks continue into 2025, and gold remains an attractive hedge

A British gold trader said it is no accident that gold can withstand rising U.S. Treasury yields and a stronger U.S. dollar in 2024, as the precious metal will continue to be an important global financial asset.

Paul Williams, managing director of Solomon Global, said in his 2025 outlook,Decode foreign exchange platform saysThe conditions that drove gold prices to 39 record highs last year remain in place and should maintain good support for the precious metal in the new year.

"The year 2024 underscores gold's enduring role as a safe-haven asset. In a world of geopolitical conflict and economic uncertainty, gold provides stability and security for investors. The all-time highs set in 2024 reflect not only market conditions, but also broader caution and hedging sentiment. This looks set to continue in 2025," Williams said in the report.

One of the biggest factors driving gold prices to record highs is geopolitical instability, as the world faces two major conflicts: the war between Russia and Ukraine, and a new war between Israel and Hamas. Chaos in the Middle East has only intensified following the expulsion of former Syrian President Bashar al-Assad into exile in Russia.

Williams said there seemed little hope of a diplomatic solution to the growing conflict in Ukraine or the Middle East.

Geopolitical uncertainty has also increased in recent days after President-elect Trump continued to threaten major tariffs in support of his America First policy.

"Far from being harmful, Trump's tariffs could support gold prices," said Mr. Williams. "The cost of tariffs, which are essentially a tax on imports, is often passed on to consumers at a higher price. For gold investors, this type of policy presents a unique opportunity, largely because tariffs typically create economic uncertainty and inflationary pressures, both of which have historically favoured gold."

A growing number of political experts warn that geopolitical uncertainty will exacerbate the ongoing trend of deglobalisation, creating a multipolar world that makes gold an attractive neutral financial asset. In this environment, Mr. Williams said he expected central banks to continue diversifying their reserves away from the dollar and buying gold this year.

"Countries are building up their gold reserves in an attempt to reduce their reliance on the US dollar in the process of de-dollarisation. This trend looks set to continue or even intensify as more banks diversify away from Treasuries and could provide further upward momentum for gold," he said. "In addition, rising wealth in emerging markets continues to drive demand, especially in times of economic or political uncertainty. This strategic move by central banks highlights the broader shift underway in the global financial system."

Mr. Williams believes the final catalyst for gold prices this year has been a weakening economy. While the US economy has remained fairly resilient, economists point to growing risks as the labour market slows. "If economic conditions worsen in 2025, leading to a global slowdown or recession, investors could continue to flock to gold," Mr. Williams said. "Weak economic data or slower growth could support gold prices, and the possibility of a pick-up in inflation will continue to weigh on gold prices."

Daily chart of spot gold

Beijing time on January 10 12:12 spot gold reported 2672.98 dollars/ounce.