The Case for Gold in 2025: Central Banks, Inflation Fears, and a Potential Yuan Gold Peg

• Gold prices are approaching all-time highs, driven by a weaker dollar, tariff uncertainty, and Trump's push for lower interest rates.
• China has been secretly stockpiling large amounts of gold, likely in preparation to revalue the yuan higher against the dollar and partially peg it to gold.
• Central banks, especially in emerging markets, have been significant buyers of gold as they diversify reserves away from paper currencies.
• The Sprott Physical Gold Trust saw large inflows of $400 million in 2024 despite competition from other asset classes like tech stocks.
• Gold is seen as a crucial portfolio diversifier and potential hedge against risks in other asset classes, debt problems, and rising inflation.

Gold has been on a strong run, with prices climbing over 1% on Friday to close in on the all-time high of $2,790 per ounce set in last year in October. The rally has been driven by a confluence of factors - a weakening U.S. dollar, uncertainty around tariffs and trade policy, and calls by President Trump for the Federal Reserve to immediately cut interest rates.

Further Gains as Economic Uncertainty Mounts

Trump's push for easier monetary policy, along with his plans to potentially impose tariffs on imports from China, Mexico, Canada and the EU, has elevated concerns about inflation.

"One factor certainly seems to be the drop in the U.S. dollar... some of the biggest factors that are driving it are associated with (President Trump) talking tariffs," noted Bart Melek, Head of Commodity Strategies at TD Securities. "Trump is at risk of elevating prices and I think the gold market perceives perhaps a higher inflation and possibly a central bank that's more accommodative."^[1]

This climate of economic uncertainty has boosted safe haven demand for gold, which remains particularly attractive in a low interest rate environment. While traders expect the Fed to leave rates unchanged at its upcoming January meeting, Trump has been vocal about wanting rates reduced.

Another major driver of gold's strength has been substantial buying by central banks, especially in emerging markets.

"I think 2024 was the year of the central bank buying gold," said John Ciampaglia, CEO of Sprott Asset Management. "I think they had the single biggest impact on the gold price and the flows."^[3]

China in particular has been a huge buyer, quietly accumulating massive amounts of gold even as it reduces its holdings of U.S. Treasuries. Bart Melek noted that gold is likely "the trump card" for China in its economic competition with the U.S. He speculated that China will look to revalue the yuan higher against the dollar and implement a partial gold peg, while also stimulating its economy to combat deflationary pressures.

"This is an extraordinary move," Melek said of a potential gold-backed yuan. "It's like the the big button on the table that you press when you have no other choice and it will appease Trump and I think this is the explanation for the gold strength that we've seen for the last year the last couple of years and and even in the last month."^[1]

While impressive, John Ciampaglia said he was a little disappointed and thought there would be even more interest given gold's strong performance. He attributed the slightly lower-than-expected inflows to competition from soaring tech stocks and speculative assets.

However, Ciampaglia sees several factors that could drive significantly more demand for gold going forward, especially from institutional investors who currently have little to no exposure. He pointed to gold's historical role as a portfolio diversifier and potential hedge against risks in equities and bonds.

"Gold is really a universal asset class," Ciampaglia said. "We've seen growing institutional interest in our products in the last few years. More and more investors are starting to realize the importance of having physical metals in their portfolios again after largely ignoring them from I'd say 2011 to 2020. In sharp contrast, when you look at gold ETFs, a good barometer of institutional interest, they were in net outflows for the fourth consecutive year last year."^[3]

Ciampaglia also highlighted the risk of higher inflation stemming from factors like large U.S. budget deficits, China's need to stimulate its slowing economy, and potential tariffs. While higher bond yields pose a headwind for gold, Ciampaglia noted that the metal has been very resilient and sees it reasserting itself as a financial and monetary asset.

Gold Projects Progress Around the World

Dryden Gold

Dryden Gold is well-funded to explore for high-grade gold in Ontario, launching a $5.8M drill campaignPresident Maura Kolb highlights the dynamic of rising demand and constrained supply bodes well for the price of gold and for companies like Dryden that are well positioned to make new, high-grade discoveries.

"We don't have that many more places to explore and find new gold deposits and we are running out of them – the major mid-tier companies need more feed for their longevity," Kolb stated. "It's pretty exciting to be front and center of a lot of these major mid-tier companies – they're paying attention to us. We have to do this, we have to make new discoveries."

Upcoming drilling at the Elora zone and regional targets provide near-term catalysts.

Perseus Mining

Perseus Mining delivered record low-cost gold production in West Africa. CEO Jeff Quartermaine emphasized their relentless focus on operational excellence and robust margins even at lower gold prices, and stressing the importance of equitable benefit sharing as a core principle:

"The world today is very very different to what it was 10 or 15 or 50 years ago, and coming into the countries where we operate, people very reasonably expect to get their fair share of the benefit of their resources. Because that's what they are after all - they are their resources, their national heritage," Quartermaine stated. "You can have the best assets in the world and the most money in the world and the greatest people, but if you're not welcome in a host community or a government you don't actually have anything."

With a strong balance sheet, Perseus is advancing organic growth projects while returning capital to shareholders.

Azimut Exploration

Azimut Exploration is mitigating risk through commodity and target diversification in Quebec. To date, the company has signed 38 option agreements with 19 companies through systematic data processing to identify high-quality targets in Quebec. Commenting on their Elmer gold project, CEO Jean-Marc Lulin noted:

"We still believe that Elmer is offering a great exploration potential and that we can increase the resource base. We generate all the projects which are in the Azimut portfolio, This is the product of the way we generate targets through systematic data processing at the scale of Quebec. This is one of the core expertises we have."

New discoveries at the Wabamisk and Kukamas projects are also gaining momentum.

Aurania Resources

Aurania's flagship project is located in southeastern Ecuador, in the same mineral belt as the Fruta del Norte gold deposit. The current land package spans over 200,000 hectares, dwarfing the footprint of Fruta del Norte. Aurania has invested over $60 million to date in systematic exploration across this vast area.

Aurania Resources hopes to secure a major partner to advance their gold-copper projects in Ecuador after the upcoming elections. The U.S. government recognizes Ecuador's strategic importance from a critical metals supply perspective. CEO Keith Barron elaborated,

I've spoken in the past to the U.S. State Department at the embassy here. They are watching very closely what happens in this country because they certainly do not want the commodities to go to China.

Marmota Limited

Marmota Limited is progressing a portfolio of gold, uranium and titanium projects in South Australia. Chairman Colin Rose highlighted the potential for low-cost, heap leach gold production:

"The beauty of the Aurora Tank model, which is an open pit close to surface gold discovery, is that we have the most remarkable metallurgical properties."

With drilling ramping up, Marmota offers strong news flow potential. Rose summarizes:

"Marmota happens to have gold which is extremely strong at the moment, uranium which is extremely strong at the moment, and titanium - they're all strong. We don't ultimately control what happens to fundamentals, but having three core assets does place us in a really strong position in terms of both risk management and opportunity going forwards into the future."

Collective Mining

Collective Mining had a strong 2024, making the high-grade Ramp Zone discovery at its Guayabales project in Colombia. Intercepts up to 57m at 8.11 g/t Au and 18m at 20 g/t Au were reported. Chairman Ari Sussman explained the significance:

"Coming in from below means that at least a 1000m of the deposit is going to be in a gravity assisted scenario in mining. Think about the savings versus the cost of expensive large trucks having to go up a ramp."

Ramp Zone has similarities to Aris Mining's 6.3 Moz Marmato mine next door. Collective plans 60,000m of drilling in 2025, fully funded by $40M cash, aiming to define a 10 Moz high-grade resource establishing Guayabales to become a major gold camp.

First Mining Gold

First Mining Gold is advancing the Duparquet Gold Project in Quebec. Recent drilling discovered two new high-grade zones: Miroir with 3.12 g/t Au over 19.35 m including 5.47 g/t over 9.6 m and Aiguille with 8.99 g/t Au over 3.1 m. 16 holes in the CVD area demonstrated strong mineralization continuity, with 142 mineralized intercepts.

CEO Dan Wilton noted:

"The discovery of these two new gold zones at our Duparquet Gold Project demonstrates the continued success of our exploration program at the project. Duparquet is one of the strongest gold-endowed assets in Canada, strategically located in the heart of the Abitibi gold belt in Quebec."

With 3.44 Moz M&I at 1.55 g/t Au and 2.64 Moz Inferred at 1.62 g/t Au, Duparquet has significant resource expansion potential. Aggressive 2025 drilling is planned to grow the gold resource.

The Investment Thesis for Gold

• Gold acts as a crucial portfolio diversifier and potential hedge against equity and bond market volatility, currency depreciation, inflation, and other economic risks
• Gold demand is underpinned by steady central bank buying, led by China and other emerging markets, as countries look to reduce their reliance on U.S. dollar reserves
• A potential revaluation of the Chinese yuan, backed by a partial peg to gold, could significantly boost gold prices as China looks to establish its currency as a viable alternative to the dollar
• Institutional investors remain heavily underweight gold and even modest inflows from this segment could have a large impact given the relatively small size of the gold market compared to stocks and bonds
• Gold tends to perform well in low real interest rate environments, making it attractive as a store of value with bond yields failing to compensate for inflation risks
• Gold is a proven safe haven asset that can help preserve wealth in times of economic and political upheaval, which appear increasingly likely given trade conflicts, high debt levels, and contentious elections

In summary, gold looks poised for continued strength in 2025 based on the combined impact of geopolitical tensions, accommodative central bank policies, inflation fears, and safe haven demand. China's potential re-rating of its currency with a partial gold peg represents a potential wildcard that could lead to substantially higher gold prices. With compelling diversification benefits and limited institutional ownership, gold and gold-backed investment products present an attractive opportunity for investors looking to hedge economic risks and preserve long-term purchasing power. However, investors should be aware of volatility in gold mining equities and understand that company-specific operational issues can lead certain miners to underperform the metal price.\

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_References:

1. _{Anil, Anjana (January 2025). Reuters. Gold poised to overtake record peak as dollar drops on Trump remarks}
2. _{Metals Investor Forum (January 2025). Macro Mayhem Favors Gold in 2025" Robert Sinn presents at Metals Investor Forum}
3. _{Ciampaglia, John (January 2025). Sprott. Gold Flows into Sprott Physical Gold Trust}