Key takeaways
• Geopolitical tensions, favourable central bank policies, and various macroeconomic elements created a conducive environment for gold’s strong performance in 2024.
• We see many of the market trends continue into 2025, and believe that gold can be a structural winner over fiat currency over the long term.
• For investors who are seeking gold bullion and gold related equity exposures RBC iShares offers a range of ETFs providing the access.
What drove gold’s performance in 2024?
Reflecting on the past year, we believe that 2024 presented ideal circumstances for gold to ascend to all-time highs. Geopolitical tensions, favourable central bank policies, and various macroeconomic elements created a conducive environment for the precious metal’s strong performance.
Globally, central banks - as significant drivers of physical gold demand - continued to increase their gold reserves throughout the year. Most of this demand originated from Asian countries, especially China and India. Central bank gold reserves globally saw an increase of over 700 tonnes in the first 11 months of 2024.1 According to a 2024 survey among institutions, 81% central banks expect global reserve holdings to continue increasing into 2025. Up from 52% in the same survey in 2021, this shifting sentiment indicates a stable demand outlook in the year ahead.2
Figure 1 - Central banks remain strong purchasers of gold, especially in Eastern economies
Beyond central banks, Chinese investors also boosted gold demand, driving up the Shanghai gold premium - the differential between the domestic price in China and international prices – in the first half of the year to a peak of $108 in mid-June. Aside from local economic uncertainty, this was driven by the lingering effects of government-imposed supply restrictions in the year before, currency hedges against a weakening yuan, and traditional seasonal retail buying patterns.
Elsewhere, geopolitical developments, particularly the Russia-Ukraine conflict and tensions in the Middle East, have driven investors towards traditional safe-haven assets, with gold being the primary beneficiary. In the United States, much of the year was dominated by anticipation of the 2024 Presidential Election outcome. This decisive event featured candidates with markedly different economic policies, creating an unpredictable electoral landscape that heightened investor uncertainty, further boosting the appeal of safe-haven assets.
Looking at gold equities, 2024 brought long-awaited relief from the steep cost inflation experienced in the post-COVID years. This should enable companies to start converting high gold prices into improved profit margins. The performance of companies in this sector has struggled to keep pace with the appreciation of the precious metal itself owing to rising production costs. However, we are optimistic about seeing broader improvements in this area in the near future.
Figure 2 - Top 5 central bank gold purchases
Country |
2024 YTD purchases (t) |
Poland |
+89.5 |
Turkiye |
+74.8 |
India |
+72.6 |
China |
+33.9 |
Azerbaijan |
+25.2 |
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Source: World Gold Council, as of November 30, 2024.
Will the momentum in gold continue?
Having observed strong momentum in both gold and gold related equities in 2024, we anticipate that many of the factors supporting this trend will persist through 2025. Continued geopolitical tensions, the stabilization of production costs for gold producers, and growing concerns over high government debt in developed economies, particularly the United States, are all themes we consider highly relevant to the outlook for gold related equities in 2025. In this section, we will elaborate on our views regarding the key risks and drivers of physical gold moving forward, as well as the opportunities we foresee for gold related equities.
1. We expect most gold tailwinds to persist. Gold is likely a long-term structural winner over fiat currency in our view.
While some of the political and macroeconomic factors worrying investors may have eased in 2024, we believe key uncertainties are still left to unfold this year. These should create a continued positive environment for gold to perform well as the go-to store of value for investors in turbulent times.
Over the past year, the rally in gold can be attributed to several factors that are likely to persist into 2025. These include central banks, particularly in Asia, stockpiling reserves, geopolitical uncertainties, and expectations of easing monetary policy in the US. Exploring these areas can provide a clearer view of what may lie ahead for gold and gold related equities.
Despite the US election being behind us, many uncertainties remain in the broader economic and geopolitical landscape, warranting a cautious stance from investors. President Trump's policy changes are still unfolding, but plans for more aggressive trade policies, increased government spending, and tax cuts could be inflationary and act as catalysts for gold. Additionally, shifts in foreign policy may accelerate conflicts in Europe and the Middle East, maintaining a cautious sentiment that benefits defensive assets.
Central banks, which own nearly 20% of all physical gold ever mined, have significant influence on gold demand. Uncertainty has prompted these institutions to bolster reserves, with Eastern nations being particularly strong net buyers. We expect this trend to continue as they intend to diversify away from the US Dollar.
Unlike previous gold rallies, the most recent one has seen limited participation from Western investors, who faced greater opportunity costs with other asset classes performing well. It is only in the past few months that gold ETF demand started to see an uptick. With total holdings still well below the previous peak, this trend continuing could provide a powerful tailwind for gold through 2025.
Figure 3 - 2024 saw ETF investors reluctant to increase gold exposure until recently
In broad terms, we believe the factors that enabled gold to hold its value in the last 15 years are still applicable. Negative demographic trends, the deterioration of government balance sheets, and limited willingness to improve them via austerity measures can all play in its favour as we look ahead.
Risks to our outlook include a de-escalation of geopolitical tensions, tightening monetary policy, and central banks halting or reversing their gold purchases. However, we believe these are outweighed by the potential tailwinds and expect gold to finish 2025 higher than 2024.
2. Spotlight on government debt and policy shifts
We view the elevating levels of national debt in developed economies – particularly the U.S. – as a key factor likely to have increasing influence on the trajectory of gold moving forward. Policies enacted by the second Trump administration will have strong bearing on the pace of increase in the fiscal burden.
Historically, government debt levels have shown a positive correlation with the price of gold.3 Rising debt often raises concerns about inflation and currency stability, which combined with lower nominal yields can contribute to making safe-haven assets like gold more attractive.
Currently, many developed economies are accumulating increasing levels of debt to finance their operations. The U.S. government's balance sheet has been a focal point for analysts, with projections indicating a permanent deficit by 2030, where its liabilities will exceed revenues. While high debt levels in U.S. government financing are not new, fiscal sustainability is increasingly questioned. A recent CFA Institute survey found that nearly 80% of financial professionals consider U.S. debt levels unsustainable, and two-thirds believe the U.S. dollar may lose its reserve currency status within the next 5-15 years.4 This sentiment could fuel uncertainty that benefits gold.
Figure 4 - The U.S. government’s total debt has been increasing steadily in absolute and relative terms
Upcoming policy changes by the second Trump administration could significantly impact debt levels. Plans to expand tax cuts and increase spending on defence and infrastructure may strain the federal balance sheet. While tariffs on imported goods could generate revenue, they risk higher consumer prices and trade retaliation. Estimates suggest President Trump’s plans could add anywhere between US$1.65 trillion and US$15.5 trillion to existing debt levels by 2035.5 The cost of servicing these liabilities is also expected to rise steeply, as projected by the Bipartisan Policy Centre.
Figure 5 - Debt servicing costs are also projected to put an increasing toll on the US budget.
Given this backdrop, we anticipate increasing pressure on the new U.S. administration to address debt-related concerns. However, there appears to be limited willingness to tackle the issue directly with targeted policy changes, which are often politically unpopular. This is likely to result in prolonged investor concern regarding the U.S. economy. Consequently, we believe this trend strengthens the case for holding gold and gold related equities, as the US dollar may lose its desirability as the stable currency of choice.
While gold is most often tracked in USD terms, high government debt is not a phenomenon specific to the U.S. Other developed nations such as the U.K., Japan, and many in the Eurozone also saw an upward trajectory in their debt-to-GDP ratio which we expect to continue in the coming years. Looking at the price of gold in other currencies across both developed and emerging markets over the past decade shows varying rates of appreciation. Annualized returns in JPY, AUD, and ZAR have all outpaced that in USD, which we believe supports the precious metal’s investment appeal regardless of geographic considerations.
Figure 6 - The price of gold has historically tracked US government debt.
3. Gold related equities stand to benefit from easing cost inflation in our view, albeit at varying paces.
As we look at the year ahead, we expect costs among gold producers to stabilize. Coupled with strong demand for the precious metal, this should lead to improved free cash flow through healthier margins. However, thorough research is essential to identify the companies best positioned to capitalize on these gains, given the varying levels of operating performance between different companies and the spread of company valuations.
Since COVID-19, companies in the gold industry have not been immune to the high inflation that has characterized the global economic landscape. Consequently, the all-in sustaining cost (AISC) for gold increased by over 30% between 2020 and 2023, driven by rising labour, material, and energy prices. Given that energy costs constitute a significant portion of these expenses, the recent slowdown in energy inflation is a key factor in this trend. Unlike previous gold rallies, which showed a positive correlation between energy prices and gold, the current rally has seen these two factors decouple, with energy prices remaining relatively stable.
Although it is too early to say that costs are decreasing or have stabilized, milder inflation is beginning to impact the operations of gold producers. We expect this to be reflected more broadly in the Q4 earnings season, with an improving trend in subsequent quarters. In our view, current valuations do not seem to fully account for this catalyst among gold related equities.
Figure 7 - Producer margins have begun to expand again
Given the differences in gold producers’ operations, we anticipate variation in how quickly and effectively each company adapts to cost stabilization. Many will need to address underinvestment in capital expenditures from previous years before they can see growth in their margins. Therefore, we believe an active investment approach is warranted to identify those companies standing to benefit the most in 2025.
Questions remain about the best use of excess cash that gold producers may generate in this environment. Since many of these companies already pay dividends, we expect them to engage in share buybacks, which could enhance stock performance by improving financial health and creating additional demand.
Figure 8 - We believe valuations for gold producers are at attractive levels, with cost stabilization not fully factored in.
While we are optimistic about the next 12 months, we remain aware of risks, particularly government interventions, that could impact our base case. These risks include difficulties in obtaining mining permits in Australia, increasing royalties imposed by African countries, and the rise of anti-mining sentiment in Mexico's current administration. In our view, these factors underscore the need for a selective, insights-driven approach to investing in gold related equities in the current environment.
Figure 9 - A continued upward trend in the oil-to-gold ratio is indicative of improving gold producer margins
Realated ETFs
Exposure |
Name |
Ticker |
MER6 |
Physical gold |
iShares Gold Bullion ETF |
CGL.C |
0.50% |
Physical gold |
iShares Gold Bullion ETF (CAD-Hedged) |
CGL |
0.50% |
Gold producers |
iShares S&P/TSX Global Gold Index ETF |
XGD |
0.55% |
Actively managed |
RBC Global Precious Metals ETF |
RGPM |
0.75% |
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Source: BlackRock; Data as of January 31, 2025. RBC Global Precious Metals ETF is managed by RBC Global Asset Management Inc., and rest of the ETFs are managed by BlackRock Asset Management Canada Limited.