The gold price rose by 6.6% in January, ending the month at an all-time high just shy of US$2,800
Stock market volatility and increased economic and geopolitical uncertainty all supported the gold price in the month
Q4 supply and demand data released in the month showed an increase in gold demand from central banks, retail investment and ETFs in the final quarter of 2024
Following declines in the last two months of 2024, gold began the new year with a strong recovery, gaining 6.6% in January. The price rose steadily throughout the month, even in the first couple weeks when faced with the headwinds of a strengthening US Dollar and higher bond yields. Geopolitics seemed to trump everything else. Gold was supported by increasing uncertainty around international affairs and over the US economy, inflation and interest rates, particularly in an environment of possible trade tariffs. Gold ended the month at US$2,798, a new record high.
By the time Trump was sworn in on 20 January, gold had recovered all the losses from the last two months of 2024, and this recovery was against what would normally be strong headwinds. A US labour report showed more jobs were created in December than the market expected, including positions in health care and government sectors. US inflation was also higher than expected, with December’s monthly rise of 0.4% the highest monthly increase in the CPI since March. The increase was due mainly to higher energy and food costs, but some core components showed signs of a slowdown in cost increases, and the market started pricing in a possible June Fed rate cut.
Post-swearing-in ceremony, markets were driven more by Trump’s executive actions but particularly his candid talk around placing tariffs on Canada, Mexico, China and possibly European countries. Stock market volatility also played a part in gold’s rise, as the DeepSeek revelation sent shockwaves through AI stocks and the market in general, although conditions eventually stabilised. The gold price continued to push higher, with increased economic and geopolitical uncertainty drawing investors to the perceived “safe haven” asset. Gold ended the month just shy of US$2,800.
In the first half of the month, bond yields and the US Dollar both moved higher, as economic data effectively removed any chance of a rate cut at the Fed’s January meeting and seemed to reduce the possibility of a cut in the following few months. To be fair, markets had already priced in a pause after the Fed’s December meeting, so this didn’t really move the needle all that much.
While the Fed did keep rates unchanged at its meeting on 29 January, the ECB cut rates by 25 basis points a day later, making it the fifth such reduction since beginning monetary easing in June 2024. The cut was widely expected by the market, with the ECB citing weakness in the European economy, and further cuts are expected given it still sees policy as restrictive. However, the central bank said future decisions will be data-dependent, and it is not pre-committed to a specific rate path.
The Bank of Japan, meanwhile, hikes its rate by 25 basis points on 24 January, citing more certainty around wages and price inflation compared to a month earlier, when it left rates unchanged. Against this backdrop of a tightening of policy and inflationary pressure, the Yen has strengthened, helping to curtail the rise in the USD (DXY) index in the latter part of the month.
Supply and demand data released at the end of the month by the World Gold Council highlighted a continuation of strong net purchases of gold by central banks in Q4, while investment in gold from both retail (bars and coins) and ETFs also increased in the final quarter of 2024. ETF demand was led by North America and Asia, while European products saw outflows for the quarter, although European demand was strongly positive in December.
Most notably among central banks, the People’s Bank of China added 10 tonnes of gold to its reserves in December, following the five tonnes purchased in November that signaled a resumption of the PBoC’s gold buying programme after a six-month hiatus. For the full calendar year, net purchases of gold by central banks globally topped 1,000 tonnes for the third-consecutive year.
Trump policy announcements but more accurately the end-result, including how trade negotiations play out. We have seen Trump use the threat of tariffs to bring Mexican and Canadian leaders to the table to negotiate on key issues such as border security, and it could be even more important to monitor developments with China and potentially the UK and the European Union.
US inflation and jobs data will also be important to watch in the coming months, as they will factor into Fed monetary policy but could also be significant as related to support for Trump policies. The American public will be keen to see the President follow through on his campaign pledge to bring down inflation. It will also be worth watching labour conditions as he reduces the size of the US government and encourages employees to the private sector.
Also keep an eye on both exchange rates and interest rate differentials, with some central banks continuing to reduce rates while the Fed seems more likely to pause until possibly the summer, although inflation (in either direction) could play a significant role in Fed policy decisions.
Despite the volatility in bond markets throughout January, yields generally ended the month slightly lower, resulting in positive returns for most fixed income asset classes. Read our latest thoughts on how fixed income markets performed during the month and what we think you should be looking out for in the near term.
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Data as at 3 February 2025 unless otherwise stated. Source: Bloomberg.
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