Gold To See Modest Gains In 2025, Trump's Trade Policies Pose Headwinds: Kotak Securities

Gold, which was among the best-performing assets in 2024, is likely to log modest gains in 2025, due to geopolitical uncertainties and continued buying by central banks globally, according to a report released by Kotak Securities Ltd. on Tuesday.

Although the metal witnessed a record rally in this calendar year, the pace of gains is expected to be dampened in 2025 due to the trade policies of US President-elect Donald Trump. After his decisive victory in the November elections, Trump is set to take charge in 2025.

"Gold may face headwinds in 2025 as President-elect Trump’s policies of tariffs and tax cuts are seen as inflationary, and hence may prompt the US Federal Reserve to take a measured approach to interest rate cuts," Kotak Securities said in its 'Market Outlook 2025' report.

Lower tax rates would also increase the US government debt, while tariffs may lead to supply disruptions and hence higher inflation, which would limit the pace of the Federal Reserve interest rates next year, it added.

A higher interest reduces the appeal of non-yielding assets like the bullion. On the other hand, a lower interest rate augurs well for the yellow metal, which is seen as a hedge against inflation.

Gold, after surging to as high as $2,801.8 per ounce at the Commodity Exchange in October, witnessed a sharp correction of 9.3% following Trump's win in the Nov. 5 presidential election. The correction was driven by the firming up of dollar and bond yields, which have an inverse relation with the price of gold.

Trump’s decisive victory led to a "sharp volatility" in the bullion market, and money managers "decreased their bullish gold bets by more than 66K net-long positions or lower by 23% from the year highs", Kotak Securities said.

"Moreover, higher growth expectations, fiscal deficits, and inflationary pressures from Trump trade policies, could boost dollar and spell trouble for gold prices," the brokerage added.

Despite the headwinds posed by Trump's trade policies, several factors suggest "continued strength in gold prices as central bank buying is expected to persist, driven by de-dollarisation efforts and geopolitical risks", Kotak Securities said.

Resilient demand from Asian markets, "particularly in China and India", will further support the prices, the report added.

Additionally, evolving political scenarios, including conflicts in the Middle East, are likely to sustain gold's safe-haven demand, it said. "Gold’s role as a hedge against inflation, political instability, and economic uncertainty positions it well for the coming year."

The pace of gain for gold, however, is likely to be modest when compared with the extraordinary rally recorded in 2024, analysts point out. Spot gold has risen by 29.4% in the global market on a year-to-date basis, whereas the metal's futures at India's Multi Commodity Exchange have risen by around 21.3% in the year so far, according to Bloomberg data.

The surge in 2024 was driven by multiple factors, including the Federal Reserve's rate cuts, intensifying geopolitical tensions, and unprecedented central bank demand.