In early 2025, gold and silver have emerged as top-performing assets, with gold nearing the $3,000 per ounce mark and silver reaching new highs. This surge is driven by several key factors:
Central Bank Accumulation: Central banks have significantly increased their gold reserves. In 2024, they added approximately 1,045 metric tons, marking the third consecutive year of purchases exceeding 1,000 metric tons. Notably, the National Bank of Poland led with an acquisition of 90 tons, aiming to diversify reserves amid global economic uncertainties.
Inflationary Pressures: Persistent inflation continues to erode purchasing power. In the United States, the Consumer Price Index (CPI) rose by 3% in January 2025, with core inflation (excluding food and energy) at 3.3%. Over the past three years, the general price level has increased by over 20% since 2021. This inflationary environment has prompted investors to seek assets like gold, which traditionally serve as hedges against currency devaluation.
Global Supply Constraints: Physical gold shortages are becoming apparent. Delays in gold deliveries have sparked concerns about supply shortfalls, leading to increased demand and higher prices. Additionally, central banks’ substantial purchases have tightened the availability of gold in the market.
Diversification Away from the U.S. Dollar: The weaponization of the U.S. financial system, which began in earnest in 2022, has motivated many nations to diversify their sovereign holdings away from the U.S. dollar. Gold has been the primary beneficiary. For several years, countries around the world have been selling U.S. Treasuries held in their foreign reserve accounts to fund their gold purchases. This has made borrowing by the U.S. Treasury more expensive. Tying alternative payment mechanisms to gold collateral has put pressure on the U.S. dollar’s role in world markets.
Analysts project that gold prices will continue to rise. Goldman Sachs has raised its forecast to $3,100 per ounce by the end of 2025, citing strong central bank demand and investor interest amid global economic uncertainties. Similarly, UBS analysts anticipate that favorable market conditions could push gold prices up to $3,200 this year before they stabilize.
In summary, the combination of central bank acquisitions, persistent inflation, supply constraints, and a shift away from the U.S. dollar has created a favorable environment for gold and silver. These factors suggest that precious metals will continue to be attractive investment options in the near future.
