Gold prices seen rising on China demand

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Gold prices went through the roof this year as central banks began to ease interest rates and demand for safe havens grew — but then Donald Trump was elected president.

Since then the U.S. dollar has stormed ahead and the yellow metal’s traditional drivers have melted away. From a record high of US$2,790 in October, prices tumbled to US$2,562 after Trump’s election.

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But don’t despair, gold fans, a report by Capital Economics suggests there could be an unexpected strength on the horizon.

China was a key driver of this year’s rally, and Capital now predicts demand from the middle kingdom will surprise forecasters in 2025.

“Given the deterioration in the outlook for Chinese equities and the prospect of a markedly weaker renminbi, China’s demand for gold in 2025 will be stronger than we had previously expected,” said Capital economist Hamas Hussain.

“In turn, this will help offset the downward pressure on gold prices from its ‘traditional’ drivers.”

As the “slow-motion collapse” of China’s property sector weakens the economy, demand for the safe haven of gold will increase, said Hussain. The property crisis will also boost the attractiveness of bullion as an investment compared to riskier prospects.

Beijing’s efforts to bolster the stock market have fallen flat, and the country now faces the spectre of 60 per cent tariffs from the United States under Trump. That threat along with a weaker economy will weigh on Chinese stocks, he said.

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Capital expects the renminbi will depreciate by about 10 per cent to offset the impact of tariffs. That makes buying gold more expensive, but history has shown gold imports tend to rise as the currency weakens.

“In a nutshell, all roads lead to gold for many Chinese investors,” he said.

The impact of Chinese buying could be substantial.

Since 2022, China has bought more the double the amount of gold purchased by other central banks. In November after a six-month break, the People’s Bank of China began buying bullion again.

Gold now makes up about 5 per cent of China’s total reserves, less than the 9.3 per cent of India’s central bank, said Capital and its economists believe the PBOC will allot more of its $3 trillion in reserves to the yellow metal.

“Whilst we expect the U.S. dollar to strengthen and Treasury yields to rise next year, which would typically point to lower gold prices, we still think that support from strong Chinese demand, amongst other non-traditional drivers, will result in gold prices reaching US$2,750 by end-2025,” said Hussain.

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Canada’s household debt continues to top other advanced economies and remains one of the country’s key vulnerabilities as it heads into the new year, says Oxford Economics.

For every $1 in disposable income in the third quarter of 2024, Canadian households owned about $1.80, more the double that of the United States and eurozone.

While households in other advanced economies paid off debt over the past decade, Canadians have continued to add it, especially mortgage debt, said Oxford. This leaves them with less money to spend on goods and services and more vulnerable to higher interest rates and job losses.

• Bank of Canada releases its summary of monetary policy deliberations for the Dec. 11 interest rate cut
• Today’s Data: Canada gross domestic product, industrial product and raw materials price indices

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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