In this presentation, CPM Group’s Jeffrey Christian shares an in-depth update on gold fundamentals for 2025, focusing on factors such as mine production, secondary recovery, fabrication demand, and shifting economic conditions. Jeff explains how heightened political and financial uncertainties may spark increased investor interest while also influencing price fluctuations throughout the year. He also discusses why central banks continue to adjust their gold holdings, and why jewelry demand often moves in tandem with price trends.
Current Market Activity and the Delivery Process
Heightened political and economic uncertainties globally and within the United States are stimulating investment demand for gold and, to a lesser extent, silver.
The first delivery date for the COMEX gold futures contract (February contract) is at the end of this week, leading to significant market activity.
As of last Thursday, there was approximately 28 million ounces of open interest in the February gold futures contract. This number decreased to 21.8 million ounces over the last two trading days, as companies short on the February contracts are buying back and rolling their positions into the April contract.
Gold prices are currently around $1,748, fluctuating in recent days.
The delivery process in the futures market involves warehouse receipts for gold in COMEX-registered depositories. Deliveries are often taken and immediately resold.
The delivery procedure begins with short sellers notifying the clearing house of their intention to deliver warehouse receipts. The clearing house then issues delivery notices to long positions, who must either buy the metal or redeliver the receipts into a forward contract.
A significant portion of delivered gold remains in depositories, often deregistered to become eligible but not registered metal.
The delivery process starts on Friday for shorts and continues into Monday, February 3rd for longs.
2025 Gold Price Projections and Fundamentals
A record annual average gold price is expected for 2025, but daily price increases may not be as sharp as in 2024 (27% increase).
Gold prices have already doubled since the beginning of 2019, rising from approximately $1,284 to $2,784.
It's crucial to consider the significant price increase over the past five years when evaluating future price predictions.
The period from late 2019 to mid-2020 saw sharp price increases, followed by consolidation between $1,640 and $2,040. Prices began rising again in late 2023 due to investment unease.
Starting 2025 at $2,660 per ounce, a 12-13% increase in the annual average price is possible even with less forceful daily price increases.
Investment demand in 2021-2023 was around 24-26 million ounces annually. In 2024, this rose to approximately 31-32 million ounces, with projections of 42-44 million ounces for 2025. This would represent one of the highest levels of investment demand ever recorded.
A sharp rise in investment demand doesn't necessarily imply equally sharp daily price increases, due to the already high price levels.
Prices may stay high, reach new intraday records, and achieve a new annual record price. Higher prices might lead to profit-taking and reduced fresh demand.
A potential recession starting in the latter half of 2025 could curb investment demand and limit investor willingness to spend over $3,000 per ounce.
Factors such as increased trade wars, less international cooperation, tariffs, increased deficit spending, higher interest rates, and tax cuts could negatively impact investment demand.
Central Bank Activity
Central banks purchased approximately 8 million ounces of gold in 2024 (excluding December data). Higher gold prices and the stronger US dollar have hampered buying activity.
Central banks are focusing on domestic economic conditions, influencing their gold purchasing decisions.
The concept of dollarization by central banks is not supported by evidence or statements from central banks themselves; BRICS nations, for instance, have explicitly rejected dollarization.
Central banks may buy slightly less gold in 2025 compared to 2024.
Historical analysis of central bank gold holdings shows periods of accumulation (1950s-mid-1960s), runs on gold (1967-1968), demonetization (1970s-early 1980s), and subsequent net purchases since 2008.
Total Supply and Fabrication Demand
Total gold supply is projected to increase, mainly due to secondary recovery from scrap and steady mine production growth (1-2%).
Secondary recovery is rising due to price, regulations, and economic conditions. Difficult economic conditions could push secondary recovery to record levels.
Fabrication demand is negatively correlated with the price. When prices increase, fabricators use less gold per item to maintain price points, and consumers buy less gold jewelry due to higher costs.
Fashion and marketing are also significant drivers of jewelry demand. High gold prices and a potential recession could decrease gold jewelry demand in 2025.
Some increase in gold jewelry demand is expected due to the upcoming Lunar New Year and Valentine's Day. However, more affordable silver jewelry is seeing greater demand.
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