$3,000 Gold: The Driving Forces

If you’ve been paying even a little bit attention in the past year, then you know that gold prices are on a tear. 

Gold surged 27% in 2024, outpacing the S&P 500's 23% gain. And that disparity looks like it’s going to widen substantially in 2025. 

Gold is already up 8% YTD, having hit a new record high of $2,956.15 last week. 

Remarkably, that’s the 11th record gold has set this year. 

Again, by comparison, stock returns have been measly. The Dow and S&P 500 are struggling to stay above water and that could be the new normal for a while. 

As is often the case with these situations, the forces holding back the market are the same forces driving gold’s run. 

Namely, inflation and economic/political uncertainty.

Inflation and Uncertainty

U.S. inflation rose by more than expected in January, rising to its highest level in six months. 

Prices jumped 3% last month, outpacing the 2.9% increase anticipated by economists.

It’d be easy to point your finger at food prices — particularly the massive surge in egg prices that have resulted from a bird flu pandemic. 

But core inflation, which strips out food and energy, also accelerated at its fastest pace in nearly a year, 0.4%. 

Meanwhile, President Trump’s tariffs — set to go into effect this week — are poised to add more fuel to the inflationary fire.

Effectively import taxes, the tariffs will raise the cost of raw materials like lumber, steel, and copper, as well as consumer goods like smartphones, computers, TVs, cars, and appliances, and even essentials like food and clothing.

That’s not just inflationary; it’s throwing a damper on consumer sentiment and spending. 

Retail sales tumbled 0.9% in January, the biggest drop since March 2023.

On the whole, Americans cut their spending 0.2% in the course of the month — the sharpest retraction in four years.

And in February, the Conference Board said that its consumer confidence index sank to 98.3 from 105.3 in January — also its biggest decline in four years.

Again, a lot of that can be attributed to inflation and tariffs, as a Bloomberg News poll recently found that roughly 60% of U.S. adults expect Trump’s tariffs to drive prices up. 

However, Americans are also facing a challenging employment environment with Elon Musk leading the Trump administration’s effort to decimate government jobs. 

There are over 2.3 million federal employees in the United States and almost every single one of them is scared of losing their job if they haven’t lost it already. 

Indeed, applications for unemployment benefits filed by federal employees nearly tripled last week as the consequences of the Trump administration’s campaign of mass firings began to emerge.

There were 1,624 initial claims filed nationwide in the Unemployment Compensation for Federal Employees program for the week ended Feb. 22, up from 614 the week prior.

That coincided with a broader increase in jobless claims throughout the American workforce.

The number of American workers applying for first-time unemployment benefits jumped to a two-month high of 242,000. The consensus forecast was for a reading of 222,000 claims. 

These figures will only worsen as Trump and Musk continue to press for drastic cuts to the government workforce.

The effect is also likely to snowball, as workers who lose their jobs will be forced to cut back on spending. That will further hamper retail sales along with higher prices. 

That could, in turn, lead to more layoffs at non-government entities, creating a self-perpetuating cycle of job losses and spending declines. 

Given all that, it’s no surprise that the stock market has suddenly gone skittish, while gold is in higher demand.

Gold in Demand

Total gold demand rose 1% in the fourth quarter of 2024, reaching a new quarterly high and contributing to a record annual total of 4,974 metric tons.

And indeed demand for gold has surged across the board.

Demand for gold jewellery was up 9% last year to $144 billion. 

Global investment demand increased 25%, to 1,180 metric tons — a four-year high — driven by a revival in gold ETF demand in the second half of 2024. 

Global gold ETFs added 19 metric tons in Q4 2024, marking two consecutive quarters of inflows. And bar and coin demand stayed largely in line with 2023 volumes at 1,186 tons in 2024.

This year, we’ve already seen more of the same, as gold-backed ETFs just saw their largest weekly influx since March 2022. 

Gold ETFs attracted 52.4 metric tons, valued at $5 billion, last week.

That includes the world’s largest gold-backed ETF, the SPDR Gold Trust, which reported holdings of 904.38 tons, the largest amount since August 2023.

Still, it’s central banks whose buying has really stood out. 

Central bank gold purchases exceeded 1,000 metric tons for a third year in a row in 2024, driven mostly by China and India.

All told, central banks bought a record 1,180 metric ton of gold last year after buying 1,082 tons in 2022 and 1,037 tons in 2023.

Again, this trend is likely to persist in 2025. 

Goldman Sachs — which just raised its 2025 gold forecast to $3,100 per ounce, up from $2,890 per ounce — says a "structural rise in central bank demand” will add 9% to gold prices by the end of the year.

Goldman also raised its central bank demand forecast from 41 metric tons per month to 50 per month. And if monthly purchases average 70 metric tons, Goldman sees gold reaching $3,300 per ounce by the end of the year.

And that’s why gold’s outlook is so firm right now. 

Everything is going right for the yellow metal — just as a lot of other things are going wrong.

Fight on,

Jason Simpkins

Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more…

In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor's page.

Be sure to visit our Angel Investment Research channel on YouTube and tune into Jason's podcasts.

Want to hear more from Jason? Sign up to receive emails directly from him ranging from market commentaries to opportunities that he has his eye on. 

@OCSimpkins on Twitter