The recent findings underline an increased volatility in gold prices, prompting State Street to adjust its price outlook from US$300 per ounce to US$400 per ounce. Over the next 12 to 24 months, forecasts suggest gold could further rise to US$4,000 or even US$5,000 per ounce under bullish scenarios, depending on potential stagflation or an accelerated move away from the US dollar.
State Street's base case scenario, with a 45% probability, foresees gold prices ranging from US$3,100 to US$3,500. This projection assumes a partial rollback of global tariffs, minimal policy rate reductions by the Federal Reserve, and a modest recovery in China's retail gold demand.
The bullish forecast, with a 35% probability, depends on heightened trade conflicts, increasing stagflation risks in the US, reduced recycling of US dollars into US sovereign assets, and a potential recession. It also relies on growing demand from Chinese retail buyers and global central banks.
Alternatively, a bearish outlook, which has a 20% probability, predicts prices could dip to between US$2,700 and US$3,100 if trade tensions significantly ease and US-China economic relations improve, resulting in a stronger US dollar.
State Street emphasizes the lasting impact of tariffs, advocating for the continued upward trajectory of gold prices. While they predict some moderation in gold demand, they also note that "post-Liberation Day trade policies have reinforced gold investment prospects for 2025."
Despite the exponential demand from Western investors earlier this year, State Street hints at a potential consolidation in prices and portfolio rebalancing, which could benefit the market in the medium term. The report notes that global gold ETF holdings remain 18-20% below their 2020 pandemic peaks, and the decline in managed money on Comex has not significantly impacted gold futures prices.
The Federal Reserve's potential easing this year could further benefit gold; however, the exact number of cuts remains a topic of debate among traders. "Gold historically prospers in environments where real interest rates fall, inflation risks are elevated, and policy credibility is questioned," State Street concludes, noting that these conditions may come into play.
