GLOBAL MARKETS - Gold prices may soar to unprecedented levels in the first quarter of 2025, according to Nigel Green, CEO of deVere Group, a major independent financial advisory and asset management firm. Green cites a combination of central bank gold buying, anticipated US Federal Reserve interest rate cuts, and enduring geopolitical tensions as key drivers for the potential increase.
Central banks worldwide have been purchasing gold at rates not seen for several decades, a trend that began with the onset of the Russia-Ukraine conflict and has since expanded. These institutions are diversifying their reserves and seeking to protect against political and economic uncertainties by reducing reliance on US dollar assets. In particular, China has notably increased its gold reserves for 10 consecutive months in 2023, and in the first quarter of 2024, it purchased 290 tonnes of gold, marking one of the strongest buying quarters since 2022.
Other countries, including Turkey, Singapore, Brazil, and India, have also significantly bolstered their gold reserves, aiming to shield their economies from currency fluctuations and potential sanctions.
The shift in the US Federal Reserve's policy from raising interest rates to cutting them is another factor that could contribute to a gold rally. Lower interest rates typically diminish the attractiveness of yield-bearing assets and may encourage investors to return to gold, which does not generate yield but is often seen as a safe-haven investment.
Green emphasizes gold's enduring role as a hedge in investment portfolios, especially given the potential for geopolitical shocks such as trade wars, sanctions, and increased global tensions. He suggests that scenarios like an escalation in financial sanctions or growing concerns over US debt could further propel gold prices.
Should the current trends continue, Green believes that gold prices could reach new all-time highs in early 2025. This prediction is based on the press release statement issued by deVere Group.
In other recent news, global markets are closely following the outcome of the upcoming U.S. presidential election, which could significantly impact international trade and economic policies. A victory for former President Donald Trump may pose challenges for export-driven sectors, such as BMW (ETR:BMWG) and LVMH, due to potential trade tensions and tariffs. Analysts at Barclays predict a "high single-digit" percentage decline in European earnings under this scenario. On the other hand, a win for Vice President Kamala Harris could potentially boost European equities and renewable energy sectors, including Orsted (CSE:ORSTED) and Iberdrola (OTC:IBDRY). However, her proposal to increase corporate taxes could dampen margins for U.S. and European firms.
The election also has potential implications for the ongoing conflict in Ukraine and currency markets. The euro could fall or rise depending on the election outcome, according to BlueBay Asset Management CIO Mark Dowding. Furthermore, the election outcome could affect China's position in global markets, with investors weighing the country's stimulus measures against the risk of increased tariffs or trade wars under Trump. Goldman Sachs strategists predict a 13% drop in Chinese stocks if Trump imposes a 60% tariff on Chinese goods.
In other recent developments, China has announced plans to increase its level of debt to stimulate its faltering economy. The absence of specific financial details in this announcement has left investors uncertain about the size of the stimulus package. China's Finance Minister Lan Foan outlined measures to support local governments with their debt issues, provide subsidies for low-income citizens, assist the property market, and boost the capital of state banks. However, the specifics of the fiscal stimulus, particularly its scale, were not disclosed, leaving global financial markets in anticipation. Despite the outlined measures, Lan did not provide a specific dollar amount for the stimulus, leaving the financial community waiting for a more detailed policy framework.
InvestingPro Insights
While the article focuses on gold prices and their potential rise, it's worth considering how this might impact major e-commerce players like Amazon (NASDAQ: NASDAQ:AMZN), which often benefit from economic shifts. According to InvestingPro data, Amazon's market cap stands at an impressive $1.98 trillion, reflecting its dominant position in the global market.
An InvestingPro Tip suggests that Amazon's earnings per share are expected to grow significantly this year, which could be influenced by broader economic trends, including those affecting gold prices. This growth potential is further supported by Amazon's strong revenue growth of 12.32% over the last twelve months as of Q2 2024.
Another relevant InvestingPro Tip notes that Amazon has a high return on invested capital, indicating efficient use of its resources. This efficiency could prove crucial in navigating potential economic changes that might arise from shifts in gold prices and central bank policies.
For investors interested in a deeper analysis, InvestingPro offers 18 additional tips for Amazon, providing a comprehensive view of the company's financial health and market position.
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