HSBC's new gold prices forecast calls for a 12% drop in 2025

Gold prices surged to a record high in mid-May, driven by robust safe haven and hedge fund purchases.

This rally has been prompted by expectations of rate cuts from the Federal Reserve and other central banks, as well as increasing economic uncertainty. Furthermore, rising fiscal deficits have spurred significant gold purchases, predominantly in the over-the-counter (OTC) market.

The jump to record highs came despite positive real rates, HSBC (LON:HSBA)'s precious metals analysts said.

"Gold is historically sensitive to real rates, and while there has been a notable disconnect in this relationship, we expect real rates to weigh on gold towards the end of 2024 and 2025,” they wrote.

Although exchange-traded funds (ETFs) continue to liquidate, strong purchases in the OTC market and by real money investors have counterbalanced this trend. Net long positions on the Chicago Mercantile Exchange (CME) remain high, but analysts suggest they may not increase significantly from current levels.

"Market sentiment is clearly bullish, and while the near-term upward trajectory shows no signs of slacking, we think prices are progressively overstretched," they noted.

Within this, HSBC has raised its average price forecasts for gold due to near-term strength, however, the bank expects a potential decline in prices by Q4 this year or into 2025.

Specifically, analysts have lifted its average gold price forecast for 2024 from $2,160/oz to $2,305/oz. Yet, their 2025 estimates are now lowered from $2,105/oz to $1,980/oz, implying a 12% drop from current levels.

Analysts expect gold prices to rebound in 2026, raising their average price projection for that year from $1,880/oz to $2,025/oz.

Looking further ahead, HSBC’s long-term forecast for the bullion now sits at $2,000/oz, up from the previous $1,700/oz.

In terms of year-end gold price projections, the bank said its 2024 and 2025 forecasts are $2,210/oz and $2,075/oz, respectively.