When will the price of gold break through $3,000?
The rise in the price of gold, which is at a historic high, has shown signs of slowing down. The reason is that as expectations of interest rate cuts in the United States have weakened, the inflow of funds such as exchange-traded funds (ETFs) has stagnated. There are also voices in the market that believe that the “negative correlation” factor that causes high interest rates to cause gold prices to fall has increased. The optimistic prediction that the price of gold will “break through the $3,000 mark for the first time in 2025” has also weakened.
“The long-term rise in the US benchmark interest rate has become the main downside risk to gold price expectations, delaying the time to achieve the $3,000 target.” In its report on January 5, Goldman Sachs postponed the original forecast that the price of gold would reach $3,000 by the end of 2025 to April-June 2026. The target for the end of 2025 was lowered to $2,910.
Other major financial institutions such as UBS and Morgan Stanley predict that the price of gold will be around $2,600-2,900 in 2025. Given that Goldman Sachs, which stands out on the bullish side, has lowered its expectations, there is a view in the market that “investors’ cautious attitude may strengthen” (Tomoji Akuta, chief researcher at Mitsubishi UFJ Research and Consulting).
New York futures (the most active settlement month), an indicator of international gold prices, soared in 2024. From summer to autumn, it rose by about $100 per month, breaking through $2,800 in October. It rose by more than $700 compared to the beginning of 2024. However, the market has been weak since November, and it once adjusted to a level below $2,600. Although it has recovered slightly at present, the rise is weak. The closing price on January 15, 2025 was $2,717.8.
The expectation of a slowdown in US interest rate cuts has become a burden on the market. Although the Federal Reserve (FRB) has cut interest rates by a total of 1% since September 2024, the current long-term interest rate has risen by 1% after the start of the rate cut.
There are also voices in the market asking, “Will the law of negative correlation be strengthened?”
For gold, which does not generate interest, its attractiveness will be relatively reduced and its investment value will be weakened in the case of rising interest rates. In the past, the price of gold and the US interest rate showed a clear negative correlation trend.
However, after Russia attacked Ukraine in 2022, gold demand was strong against the backdrop of geopolitical risks and the move away from the US dollar. Gold also has demand support, and there are also prominent examples of gold prices rising even in the case of rising interest rates. However, the US interest rate has risen rapidly recently, and vigilance has increased rapidly.
In fact, the gold ETFs purchased by institutional investors who are sensitive to interest rates turned into a net outflow of funds in November 2024 after a lapse of 6 months. There was only a small net inflow in December.
The demand of speculators who have been actively buying ETFs due to expectations of US interest rate cuts is also sluggish. Data from the US Commodity Futures Trading Commission (CFTC) showed that the net purchase volume was about 247,000 lots as of the end of December, 20% less than the recent high of September 24 (about 315,000 lots).
According to estimates by Hiroshi Watanabe, director of the financial market research department of Sony Financial Group (FG), every 0.1% increase in the US 10-year real interest rate will lower the gold price by $32. Watanabe believes that “interest rates have a great impact on gold prices, and gold price increases may be suppressed in 2025 when inflation expectations and interest rates remain high.”
Against the backdrop of strong US employment data and the appreciation of the US dollar, the weakening expectations of US interest rate cuts may continue. Trump said at a press conference on January 7 that “the benchmark interest rate is too high.” However, among those involved in the gold market, the cautious view that if Trump’s proposed tariffs and tax cuts lead to higher prices and interest rate cuts, this will become more difficult is dominant.
However, few people think that gold prices will collapse. This is because “positive factors other than interest rates are increasing.”
Ikemizu Yuichi, representative director of the Japan Precious Metals Market Association, said, “Due to the many political and economic uncertainties, the situation in which gold is difficult to sell will continue. It is expected that the price bottom this year will be around $2,500, and there may not be much room for decline.” The People’s Bank of China (PBOC), which has stopped buying gold for six months, has increased its gold purchases for two consecutive months in November and December 2024. Some people expect that this will support the price of gold.
Is the negative correlation caused by high interest rates in the United States increasing? Or is the impact of other materials more prominent? Whether the price of gold will regain its strength and return to the bull market towards $3,000 depends on how these influencing factors are viewed.