Prediction of precious metals prices, gold in particular, is becoming tougher by the day. The recent announcement of the winners of the 2024 precious metals survey by the LBMA, perhaps, bears testimony to this newfound reality. Bullion analyst Sanjiv Arole explores the whys and wherefores of the topic.
In modern times, forecasting is a tool used by trained people using scientific methods to predict the future in almost all walks of life like climate, weather, agriculture, crops, economy, industry, etc.
In gold, the winning forecast was an average gold price of $2,170 per ounce against the actual average price of $2,386.20 per ounce for the year 2024, which was off target by 9.96%.
In silver, the difference between the winning forecast and the actual average price was 4.7%.
But the scenario was different as far as the PGMs’ price prediction was concerned.
In platinum, the prediction was almost perfect, just off target by less than 0.1%, while in palladium the difference was within a permissible limit of 0.8%.
For 2025, forecasting of precious metals prices could not be expected to be simplified in any way. Throw Trump into the mix and one can imagine the degree of difficulty for gold price forecasters moving ahead. Indeed, ever since Trump came on the scene after his election as President of the USA, things have not been the same, even more so for the precious metals markets.
Consider the following: On October 31st gold reached its all-time high of $2,790.07 per ounce. Thereafter, on Trump’s win in the presidential elections it fell to $2,548 per ounce by November 14, 2024. Then, the yellow metal briefly climbed back over the $2,700 per ounce after the US Fed went ahead with a third consecutive rate cut. However, by the end of the year, gold was in the $2,609 / 10 per ounce region, down by around 6.9%.
Strangely, in early 2025, gold has shown a different path altogether. Although gold opened in 2025 only slightly higher at $2,644.60 per ounce on January 2, 2025 (London am fix, kitco.com), it gravitated towards $2,700 per ounce by January 16, 2025, on various events that impacted global markets. However, it was generally perceived that with the truce between Israel and Hamas in the last days of the Biden administration resulting in relative peace in the Middle East, and the possibility of only two rate cuts by the US Fed in 2025, would mean gold could consolidate for some time before making any move.
But the accession of the Trump administration to the White House and a rash of executive orders from him saw markets go topsy-turvy. Stock markets dived, the dollar declined sharply on fears of a trade war, and a couple of pronouncements on the cryptocurrencies allowing only the private sector to deal with them by removing government control over them and doing away with capital gains tax on cryptos also created confusion in the global markets as well.
In spite of all that, gold came within handshaking distance of its all-time high of $2,790.07 per ounce as it scaled up to $2,786 per ounce on Friday, January 24, 2025 (intra-day).
Already, early Monday morning in Asia gold was near $2,753 per ounce after the latest order on cryptocurrencies. By afternoon on that same day, gold was back near $2,772 per ounce with the London AM fix at $2,667.10 per ounce. Thereby, setting the tone for times to come in the coming weeks, gold is in for a rollercoaster ride.
Elsewhere, there was great furore when it was initially announced that gold imports during November 2024 had risen sharply by 331% to over $14 billion and that during the April-November 2024 period gold imports stood at a whopping $49 billion from around $32.93 billion for the same period in 2023.
There was a hue and cry as almost everyone was for gunning for gold, citing the lowering of import duty from 15% to 6% as the main culprit, as well as the FTA with the UAE and other factors as the other prime suspects. The balance of payment issues as well as the CAD also made headlines, and many wanted to reverse the import duty cut and nullify the FTA on gold with the UAE.
Fortunately, before the whole issue spiralled out of control and reached a flashpoint, it transpired that there was double counting by a couple of governmental agencies and the overall numbers were revised by over $12 billion, with the November gold import number being revised down by around $5 billion. Further, the first report for gold imports during the calendar year 2024 stood at 724 tonnes against 744 tonnes in 2023. However, in value terms gold imports were up by around 21%.
A gold.org report showed that the RBI accumulated 72.6 tonnes of gold in 2024, ending the year with 876 tonnes of gold in reserves. The report highlighted that the high gold price during the year that caused demand for jewellery to slow down even as demand for bars and coins for investment purposes showing a rise.
Gold ETFs surged during 2024, attracting net inflows of $1.3 billion. It was the strongest annual inflow on record and almost four times higher than the previous year. Overall, the collective holdings in gold ETFs increased by 15 tonnes in 2024 to 57.8 tonnes.
In 2025, jewellery demand is expected to pick up with the ensuing wedding season. However, the recent surge in the gold prices could impact jewellery demand with price stability and not price volatility being the key factor for the year ahead.
In the international bullion markets, as gold prices scaled multiple all-time high levels, global investor appetite for gold ETFs finally turned around, with their first annual net inflows in four years. A small $3.4 billion net inflow across physically backed gold ETFs pushed their total AUM up by 26% to $271 billion. Central Bank gold purchases were in tune with their net purchases in 2022, but lower than the highs seen in 2023. However, Central Bank gold purchases are expected to end 2024 much nearer to the 1,000 tonne mark.
As far as silver is concerned, silver prices continue to follow gold. Fears of reduced industrial demand from China and inflationary trends seen over the horizon continue to plague the silver markets. A breakout in silver prices is seen hinged on the Fed’s inflation stance and dollar moves in the near term. Gold’s rally usually supports silver but weaker industrial demand and uncertainty over growth in renewable energy put a spoke in silver’s wheel. As a result, silver is hampered in its attempts to break through the $31 per ounce barrier.
Meanwhile, as Budget Day approaches trade bodies across the country are making their respective presentations to the FM with a list of their proposals. A pan-India bullion & jewellery association, too, presented its case before the FM. Among its long list of recommendations were a few proposals, mainly for gold, that warranted a close look: (a) Reduction in import duty from 6% to 3%, with a special benefit of 0.5% for importing through the International Bullion exchange (IIBX); (b) Allowing all import of gold only through IIBX; (c) To allow export of bullion through IIBX; (d) Mandatory hallmarking of gold and silver across India for jewellery; (e) Gradually moving to 100% bullion trade through commodity exchanges only.
The proposal to incentivise bullion imports through the IIBX by lowering the import duty by an additional 0.5% could be a game changer in enhancing greater transparency in the bullion trade.
Further, allowing all gold imports only through IIBX could make illegal gold imports into the country virtually untenable. It reminds one of the times when import duty on gold was reduced to Rs.100 per 10 gms for all pre-numbered imported gold bars of metric weight against Rs.250 per 10 gms for others.
Then, it virtually turned a tola-bar market to a kilo-bar market and forced smuggling to a mere trickle and even the DRI to stop keeping a close watch on gold imports. Even the hawala rates came at par with the official rupee rate.
The move to make hallmarking of gold and silver across India for jewellery coupled with moving 100% of the bullion trade through commodity exchanges only could deepen the bullion market. It could be a vital step towards making of a mature gold market ready for blending with the global ecosystem for gold.
Finally, gold seems to be propelled by the T-missile and seems all set to cross the $3,000 per ounce target. However, this T-missile is said to be temperamental, unpredictable, disruptive and combative. It is also perceived to be unstable enough to even aim at itself. It could even self-destruct taking gold down as well. Gold, better watch out!