Gold Price Outlook – December 2024

“Gold prices declined sharply during the first half of November. A combination of profit-taking from record high levels at the end of October coupled with reduced risk premium following a clear winner of the U.S. election pushed gold prices to an intraday low of $2,541.50. This was a decline of 9.3% from the record $2,801.80 record high reached on 30 October.

Gold prices recovered around half of this loss during the second half of November, ending the month at $2,681. An escalation of tensions between Russia and the West, the U.S. presidential transition, and the roll of the December Comex gold contract were all factors that helped gold prices during the second half of November.

Gold has had a strong year, with prices up around 28.6% from the end of 2023 at the time of writing this report. There has been a reduction or elimination of some of the risks and uncertainties that led investors to buy increased volumes of gold this year. There are further risks to gold prices over the remainder of this year, but prices still are expected to close out 2024 with a strong performance and are expected to continue rising in 2025.

The biggest downside risk to gold prices in the near term comes from the potential for the Fed to lower the number of interest rate cuts it was planning on delivering during 2025. The market is presently pricing a 50 basis points (bps) reduction in the Federal Funds Rate during 2025. The Fed’s last projection of interest rate cuts, released during September 2024, showed a 100 basis points (bps) reduction in the Federal Funds Rate in 2024 and an additional 100 bps reduction in 2025. Since then, the Fed has reduced the Federal Funds Rate by 75 bps. The nearterm downside risk to prices comes from the Fed not cutting rates in December, which has a low likelihood, or the Fed cutting rates less than 50 bps in 2025, which has a higher likelihood of occurring.

Inflation has been ticking lower, which has bolstered investor expectations that the Fed will cut 25 bps in December. That said, the economy and U.S. labor market are holding up fairly well, which has some market participants expecting that the Fed may take a pause at its December meeting. This group is in the minority, however, with the CME Group FedWatch tool showing a 70% probability (at the time of writing this report) of a 25 -bps reduction in the Federal Funds Rate at the upcoming December meeting. The Fed also is not a fan of surprising the market and will most likely follow through on its 25-bps cut at the December meeting in the absence of some dramatic change between now and 18 December.

There is a greater probability that the markets’ expectation of a 50-bps cut to the Federal Funds Rate will be dashed in the upcoming Federal Open Market Committee projection material. Part of the reason for this is the resilience of the U.S. labor market, but in addition to the labor market the Fed also will need to take into consideration the inflationary impact of some of the policies – tariffs, tax cuts, and deregulation — that the incoming Trump administration is likely to attempt to implement next year. If the Fed projects a less than 50 bps cut in rates next year, it could result in some weakness in gold prices.

A bigger jolt to gold and other markets would occur if the Fed does not cut rates in December, given there is a broad expectation for this cut to occur. But as mentioned before, in the absence of some dramatic change between now and the next Fed meeting in the middle of December, the Fed seems most likely to follow through on its 25-bps cut. Over the course of 2025 gold prices are expected to rise and remain strong. There are several risks both political and economic which should keep investors interested in gold. Tariffs and consequent trade wars serve as the biggest economic risk, given the ability of tariffs to both increase inflation and reduce economic growth.

Gold prices could potentially test $2,550 during December if there is any surprise from the Fed. Prices are not likely to fall much below this level in any sustained fashion because of the various political and economic risks that linger. Heading into 2025, gold prices could rise based on these risks as well as seasonal strength in prices. A retest of the record levels is possible during the first quarter of next year.”