Gold Prices To Drop More than 30%?

January 10th, 2025 by Trefis Team
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Gold prices rose to the highest levels in around four weeks on Wednesday to $2,657 per ounce. Recent shifts in equity markets and concerns about U.S. economic policies have amplified demand for gold, with prices reaching record highs in early 2025​.

Why have gold prices increased 30% in one year?

Recent increases in gold prices are driven by several key factors. Firstly, heightened tensions globally, especially involving major powers like the U.S., Russia, and China, have created instability in financial markets. Investors are turning to gold as a safe-haven asset to hedge against potential crises. Secondly, persistent worries about inflation in major economies have made gold an attractive option for protecting purchasing power. Additionally, central banks have significantly increased their gold reserves, driving up demand. Lastly, expectations of slower interest rate hikes or potential cuts by central banks, including the Federal Reserve, have boosted gold’s attractiveness.

Can gold prices crash 30%?
Gold prices have seen sharp declines before. Between 2011 and 2015, gold fell nearly 45% from its peak of $1,920 per ounce to $1,050 per ounce due to a strong dollar, rising rates, and economic recovery. Leaving history aside, there are other scenarios which could lead to a 30% crash in gold prices. Aggressive Federal Reserve Policies, wherein interest rates rise significantly faster than expected would strengthen the dollar, which inversely affects gold prices. Scenarios in which gold supply suddenly shoots up, due to the discovery of new gold reserves, or central banks or major institutions selling off significant gold reserves would put downward pressure on gold prices. Strong recovery in global economies along with geopolitical stability may also reduce gold’s demand. Lastly, increasing interest in alternative assets, (like cryptocurrencies or other commodities) could lead to a decline in gold’s perceived value.

While a 30% crash is not impossible, it is unlikely without a dramatic shift in multiple factors simultaneously. The decline in prices is likely to happen in a more tapered fashion than abruptly.

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