Gold has been a shining star in the Australian investment landscape, with a remarkable 38% surge in 2024. This surge has been fueled by robust investment demand and various geopolitical risks. The past year witnessed a mix of events that influenced investor sentiment and asset performance, including elections in the US and Australia and ongoing global geopolitical tensions.
The US Federal Reserve embarked on an easing cycle in 2024, cutting rates by a total of 100 basis points, while the Reserve Bank of Australia maintained steady rates. The Australian dollar weakened against the US dollar, driven by diverging stances of the Fed and the RBA, contributing to the strong performance of gold, which is denominated in AUD.
Looking ahead to 2025, the outlook for gold remains positive. Factors such as elevated US Treasury yields and the dollar, central bank gold purchases, geopolitical risks, and volatility in equities and bonds could all bolster gold prices. Additionally, potential weakness in non-US currencies, including the Australian dollar, may further support gold in local currency terms.
The Australian economy faces challenges such as restrictive financial conditions, declining real income, and uncertainties surrounding Chinese economic development. These factors, coupled with geopolitical risks, could create volatility in local assets, making gold an appealing asset for Australian portfolios.
Despite potential headwinds in the macro environment, gold is poised to continue its strong performance in 2025. The global geopolitical landscape and financial market risks are expected to draw attention from both institutional and retail investors. Moreover, the possibility of AUD weakness may enhance the attractiveness of gold in local portfolios.
Over the long term, gold is anticipated to deliver stable returns in line with global nominal GDP growth. The metal’s intrinsic value and ability to act as a hedge against market uncertainties make it a valuable addition to diversified investment portfolios.
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