After gold breaks through the $3,300 mark, where will it go next? Saxo Bank is bullish to $3,500

According to Zhitong Finance APP, since the beginning of this year, the spot gold price has risen significantly by 25%, reaching the target set by Saxo Bank of $3,300 for 2025 ahead of schedule, raising the question: Where will gold prices go next?

It is clear that the strong performance of gold has largely been driven by a weak dollar, most notably the depreciation of the dollar against the euro, yen, and Swiss franc, leading to more moderate gold returns for investors in these regions and countries. In India, it is reasonable for investors to increase gold investments to hedge against the weakness of the local currency.

Gold Returns in Different Currencies

Ole Hansen, Head of Commodity Strategy at Saxo Bank, stated that potential demand from major central banks over the past two years, combined with the Federal Reserve's interest rate cuts, growing concerns about rising government debt, and the implementation of sanctions, export controls, tariffs, and investment restrictions by various governments, have all increased the attractiveness of gold. Recently, tariffs imposed by the U.S. have raised risks of economic recession and inflation, providing additional support for gold. It is noteworthy that gold and other precious metals are politically neutral, recognized worldwide, and not constrained by any country's credit rating. This is a significant reason why investors—whether private investors, institutional investors, or central bank investors—continue to turn to gold even at record price levels.

Saxo Bank believes that in the medium to short term, factors such as escalating global economic tensions, stagflation risks (declining employment rates, slowing economic growth, and rising inflation), and a weakening dollar may continue to support gold prices, and to some extent also support silver, as silver is relatively cheap after its sharp decline in early April. Additionally, the market is currently actively preparing for further interest rate cuts by the Federal Reserve this year, with expectations that the Fed will cut rates by more than 75 basis points before the end of the year. Demand for gold from major central banks and high-net-worth individuals (especially in Asia) continues to grow, as they seek to reduce or hedge their exposure to U.S. Treasuries and the dollar.

Although the gold price has surpassed the $3,300 mark, setting a new historical high, silver has yet to reach the high of $34.90 set in October 2024, especially after this semi-industrial metal plummeted by 18% in the days following President Trump's tariff offensive on April 3. However, Saxo Bank found that over the past three years, even during periods of record purchases by major central banks supporting gold, the gold-silver ratio has averaged around 85.

Spot Gold and Gold-Silver Ratio Trends

Overall, Saxo Bank has raised its gold price forecast for 2025 to $3,500 per ounce, while given silver's industrial exposure and current concerns about an economic recession, the metal's performance may struggle to significantly outperform gold as previously predicted. Based on the gold-silver ratio falling from the current 100 to 90, Saxo Bank expects silver to eventually rise to $40.

Saxo Bank also listed several key factors supporting gold prices:

U.S. Federal Funds Rate Expectations: Market participants are closely monitoring the Federal Reserve's interest rate expectations, as this greatly affects the attractiveness of gold. Currently, the futures market is digesting the possibility of the Fed cutting rates by 75-100 basis points by the end of the year, indicating a more accommodative monetary policy. Lower rates reduce the opportunity cost of holding non-interest-bearing gold, thereby supporting gold prices.

Demand for "Paper Gold" through Futures and Exchange-Traded Funds (ETFs): The demand for gold-backed financial products depends on technical market factors such as price momentum and macroeconomic indicators. Additionally, for ETF investors, the cost of holding gold is a key factor, and the prospect of lower financing costs along with concerns about an economic recession is boosting demand. The known gold ETF holdings currently stand at 2,773 tons, an increase of 269 tons from May last year, but still far below the record high of 3,453 tons in 2020.

Rising U.S. Inflation Expectations: Investors often view gold as a hedge against inflation. Recently, the real yield on the U.S. Treasury yield curve (nominal yield minus inflation expectations) has been declining, indicating growing concerns about future inflation. As inflation expectations rise, the real return on fixed-income assets declines, increasing the relative attractiveness of gold.

Geopolitical Risks: Global instability often drives investors toward safe-haven assets like gold. Recent correlations between defense stocks and gold suggest that as geopolitical tensions escalate, investors view gold as a safe haven, thereby supporting gold prices. Additionally, the current trade war exacerbates geopolitical tensions and increases the downside risks to economic growth.

Strong Demand for Gold from Central Banks Amidst Efforts to Reduce Dollar Dependence: An increasing number of central banks are diversifying their foreign exchange reserves, reducing reliance on the dollar and turning to gold. Over the past three years leading up to 2024, central banks have purchased more than 1,000 tons of gold annually, and this trend seems likely to continue into 2025 and beyond, thereby supporting gold prices