Gold jitters caused by the Fed's hawkish signal, but analysts predict support for the precious metal in 2025.

• On Wednesday, the U.S. Federal Reserve delivered a hawkish forecast, causing the U.S. dollar to climb while gold prices dropped. The values of the two are inversely related.
• Although the possibility of a stronger US dollar in 2025 exists, analysts informed CNBC that gold prices will experience robust support due to several factors, including central bank and Chinese demand, as well as increasing geopolitical tensions.
• Gold prices may decrease next year due to non-traditional factors, despite Trump tariff proposals and a more hawkish Fed increasing the risk of lower gold prices.

The Federal Reserve surprised markets with a hawkish outlook on interest rates for next year, which may negatively impact gold prices, but analysts predict continued support for the precious metal in 2025.

The Fed's "dot plot" now indicates that policymakers expect to cut interest rates twice in 2025, instead of the previously anticipated four quarter-point cuts, which were prompted by concerns about the weakening labor market in September. The central bank's main worry now is whether the policies of President-elect Donald Trump, particularly his threat of imposing sweeping trade tariffs, will lead to inflation.

On Wednesday, the dollar index reached a two-year high after the Fed news, while gold prices fell 2% to their lowest level in a month.

Gold is commonly valued in dollars, and a stronger dollar tends to decrease gold prices. Additionally, higher interest rates and U.S. Treasury yields typically lead to increased competition for gold as a safe-haven asset, resulting in decreased demand.

According to Hamad Hussein, commodities economist at Capital Economics, these relationships have been "on and off" for the last few years due to wider factors such as demand for gold from central banks, particularly China, outweighing dollar and U.S. Treasury moves.

Gold prices may decrease due to Trump's tariff proposals and a more hawkish Fed, but we anticipate non-traditional factors to have a stronger impact next year.

In Hussein's view, China is the largest contributor to the increase in gold purchases by the world's central banks. The central bank of China, which is the world's second-largest economy, has resumed purchasing gold. This is due to a weak macroeconomic outlook, especially in the context of a potentially escalating U.S. trade war. Additionally, central banks from Poland to India have also increased their gold purchases since the outbreak of the Russia-Ukraine war in 2022, according to Hussein.

Over the next year, it is predicted that gold prices will remain near their all-time highs, according to Hussein.

Crypto competition

RBC Brewin Dolphin's head of market analysis, Janet Mui, stated that gold prices would maintain their support in the upcoming year.

"A more hawkish Fed, a stronger U.S. dollar, and higher real yields are near-term negative for gold, especially after a strong rally in gold prices this year and the increasing popularity of crypto as a digital store of value," Mui stated via email.

Mui added, "Although that is said, we believe some structural and cyclical support for gold will persist."

Central banks in emerging markets are looking to increase the percentage of gold in their reserves and use it as a hedge against macro risks. As a result, we maintain our overweight in gold as a diversifier against our overweight position in risk assets.

For years, there has been debate about whether cryptocurrencies, such as bitcoin, could replace gold as the primary "store of value" asset. Critics argue that crypto assets do not have the stability of metal.

Both crypto and gold have theoretical appeal as a refuge from wider geopolitical and market volatility, but the performance of crypto prices has not always been consistent with this notion.

Ewa Manthey, commodities strategist at ING, stated that the combination of geopolitical tensions, central bank diversification of foreign reserves, and the likelihood of lower interest rates create a "perfect storm for gold."

Although gold prices have decreased since yesterday's Fed announcement, we predict that gold's upward trend will persist in the near future, according to Manthey's email.

Gold prices are expected to increase to an average of $2,760 per ounce by 2025, up from the current price of $2,595.

Manthey nevertheless stressed that her bullishness was for the short to medium-term.

Trump's proposed policies, such as tariffs and stricter immigration controls, will limit interest rate cuts from the Federal Reserve in the long term. This is because these policies are inflationary in nature. As a result, a stronger U.S. dollar and tighter monetary policy could eventually provide some headwinds to gold.