Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
Governments could extend their years-long gold binge with a 900-ton appetite in 2025, projects UBS. The global investment bank cites diversification and de-dollarization as the main motivators for central banks dumping the dollar in favor of gold.
Furthermore, analysts project that this sustained consumption will propel the yellow metal to new records, even after an impressive 27.6% gain in 2024. The anticipated rally faces potential headwinds, such as a powerful dollar and lowering interest rates, but systemic debt issues and geopolitical uncertainty could weaken the effect of those challenges.
Government Consumption Boosts Gold Prices
UBS analysts underline central bank demand as the primary stimulant behind gold’s anticipated rise in 2025. This point is buttressed by Goldman Sachs research which indicates every 100 tonnes of physical gold demand raises prices by a minimum of 2.4%.
The global national-level buying spree started in the wake of the pandemic following several years of muted demand. For instance, between 2020 and 2021, central bank gold consumption surged 82% only to more than double in 2022.
Here are the net total purchases over the past five years:
- 2020: 9 tonnes
- 2021: 463 tonnes
- 2022: 1,136 tonnes
- 2023: 1,037 tonnes
- 2024: 1,313 tonnes
Although central bank purchases hit a relative peak in 2022, the pace of accumulation has remained exceptionally high. Based on this pattern and the tone of the world’s fiscal leaders, experts project central banks will prefer gold over USD in 2025. UBS projects demand to fall slightly in 2025 to 900 tonnes yet still over 200% higher than it was five years prior.
What’s driving central bank demand?
As the key impetus for gold’s ongoing rally, it’s valuable to understand the underlying factors behind gold’s booming demand. Analysts at UBS attribute the consumption to “diversification and de-dollarization trends” as governments seek to hedge against economic instability and dollar weaponization.
These motivations are especially pressing for emerging economies, which are disproportionately affected by USD weakness and dollar-related sanctions. That’s why China, Russia, and other BRICS nations are comprising an outsized portion of gold buying.
Fed Switchup Could Dampen Growth
In its report, UBS acknowledged the weight the Federal Reserve’s hawkish stance could place on gold’s projected strength. The yellow metal already lost some momentum at the closing bell of 2024 as the government struck a more cautious tone on rate cuts. Market projections have been halved with only a 50-basis-point rate cut expected in 2025.
The opportunity cost of holding physical gold assets remains slightly higher in a slow rate-cut cycle than interest-yielding investments. On top of that, a stronger dollar could further burden gold’s rise. Despite these potential hurdles, UBS maintains a bullish stance, explaining, “political and geopolitical uncertainties persist, supporting continued strong demand for gold.”
2025 Gold Price Forecast
Gold notched a nearly 28% gain in 2024, outpacing the broader stock market which posted its own records. Even with the yellow metal near all-time highs, UBS believes “the market is still underinvested in gold.” UBS has set a price target of $3,000, indicating roughly a 9% rise from current levels.
This positive outlook is shared by many experts including financial institutions, investors, and precious metals advisors which have posted healthy gold price forecasts for 2025. The average price prediction is just over $3,000, right in line with UBS’ expectations.