The gold market thrived throughout 2024, delivering substantial gains for investors in the yellow metal. It is anticipated that this precious metal will continue to shine as we move into the new year.
Publicly available data shows that gold yielded approximately 27 per cent returns in 2024.
In a recent report, MUFG Bank, Japan’s largest bank and one of the world’s largest, asserted that the bull run in gold will persist through 2025. The report attributes this to two key factors: hedging against geopolitical risks and sustained demand from central banks in emerging markets.
“Gold’s unshakable bull market remains our most constructive conviction for the second consecutive year, reinforced by a combination of ‘fear’ (geopolitical hedge of first resort) and ‘wealth’ (EM central bank demand) dimensions,” stated the MUFG Bank report titled ‘Commodities 2025 outlook: Stay selective, hedge Trump-induced tail risks’.
“Demand from financial and monetary institutions, investors, and speculators on the back of US Fed cuts, US policy uncertainty, and heightened geopolitical tensions offer compelling entry for our long gold call,” it added.
Central banks worldwide have increased their gold reserves amidst uncertainties arising from ongoing geopolitical tensions. Gold is widely regarded as a safe investment haven.
With the exception of 2021, gold has consistently been one of the best-performing assets in recent years, having closed in the green domestically since 2016.
The MUFG Bank report maintains a neutral-to-bearish stance on the energy sector, citing potential Trump-induced tariffs and geopolitical uncertainties as contributing factors.
The bank’s report suggests that oil price risks are skewed to the downside in 2025. “Not only will supply (OPEC+ and non-OPEC+) surge, pivoting the market from a deficit to a surplus, but tariffs, as well as China’s shift towards EVs and natural gas (LNG trucks) for road fuel, will hamper demand,” the report argued.
Similarly, the outlook for base metals is neutral-to-bullish.
Regarding agricultural commodities, US trade, foreign policy, broader geopolitical developments, and an uncertain La Niña are expected to amplify volatility. However, the report notes that a low inventory base will limit downside price risks.
Commodities typically serve as an inflation hedge, as these physical assets deliver strong real returns when inflation rises, contrasting with the negative real returns of equities and bonds.
(With an input from ANI)
