Geopolitical risks, inflation concerns, and rising central bank demand boost the gold price. Sustained buying by China and other emerging markets supports prices, with expectations of Fed rate cuts enhancing gold's appeal. Short-term corrections may occur, but gold’s role as a hedge against economic and financial uncertainties remains robust.

Gold: Remain the king

Gold's outlook remains bullish, supported by both structural and cyclical factors, as it continues to function as a dual-purpose asset in terms of "fear" and "wealth" dimensions. MUFG projects gold prices to surpass $3,000/oz by Q3 2025, emphasizing its role as a reliable hedge against geopolitical risks and a store of wealth amid economic uncertainty. In the short-to-medium term, gold's "fear" dimension is underpinned by its ability to hedge against geopolitical tensions, such as the ongoing Middle East conflicts and the war in Ukraine, as well as concerns over inflation, fiscal deficits, and challenges to the US dollar system. Cyclical catalysts, including potential financial crises or systemic shocks, also bolster demand.

On the "wealth" side, emerging market (EM) central banks are driving long-term demand for gold due to fears of sanctions and diminishing confidence in dollar dominance. Additionally, robust Asian retail demand, particularly from China, reflects concerns over economic stability and currency devaluation. The latest data reveals that China, the largest official gold buyer in 2023, has resumed purchases, signaling a continued effort to diversify out of the US dollar. This multi-year buying effort suggests sustained support for gold prices, with China's renewed purchases strengthening the bullish narrative, especially as December tends to be a seasonally positive period for gold.

Gold's pricing has decoupled from traditional catalysts such as real interest rates and the US dollar, benefiting instead from expectations of Federal Reserve rate cuts, increasing central bank buying, and heightened concerns over global debt. The metal’s resilience amid economic uncertainty and structural risks reinforces its appeal as a geopolitical hedge of first resort.

Additionally, China's recent policy signals, including proactive fiscal measures, moderately loose monetary policy, and initiatives to stabilize consumption, property, and stock markets, could further enhance gold demand. These measures reflect an effort to maintain economic stability while boosting domestic and global confidence, indirectly benefiting gold as a hedge against macroeconomic risks.

While the bullish trajectory remains intact, potential constraints include resolutions to geopolitical conflicts, reduced central bank buying from EMs, easing concerns about China's economic growth, or unexpected hawkishness from the Federal Reserve. However, these risks are not expected to derail the structural bull market into 2025. Overall, gold remains well-positioned to thrive amid global economic and geopolitical uncertainties.

XAU/USD 4H Chart

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