Trade tensions and heightened concerns about the sustainability of the US fiscal balance could help light a fire under gold prices next year, according to a study. Goldman Sachs.
The precious metal hit an intraday high of $2,790 at the end of OctoberWhen the World Gold Council warned that its quarterly demand trend market had He succumbed to FOMO– or fear of losing. It has since retreated throughout November, trading around $2,600 today.
“The consolidation of the gold price after the orderly US election – removing speculative positioning from near all-time highs – provides an attractive entry point to buy gold,” he said in a research note on the commodity outlook for 2025 published on Sunday.
Goldman Sachs expects strong bullion demand among central banks constantly diversifying their reserves Away from the US dollar allocation after the Biden administration He froze Russian assets As punishment for the invasion of Ukraine. Some banks see gold as a more politically neutral asset that cannot be subject to freezes by countries due to geopolitical risk.
Exchange-traded funds will also rise in price, Goldman predicted, as cyclical inflows from investors seeking to hedge their portfolios counter the effect of the Federal Reserve’s expected cut in interest rates to between 3.25% and 3.5% next year.
Bullion could rise to $3,150 an ounce by the end of 2025
As a result, gold bullion should sell for $3,000 an ounce by the end of next year, the Wall Street investment bank believes.
But now the bank believes that geopolitical risks could push speculators who were active until recently to return as Trump’s transition team continues to surprise markets with its unorthodox policies and cabinet appointments.
This could push gold to $3,150 an ounce as speculators begin betting on whether the US economy will impose new punitive tariffs on its trading partners as the country increasingly struggles. enormous fiscal deficits.
Gold vote of confidence in government bond backed paper currency
The $1.83 trillion budget shortfall from this last fiscal year through September had to be met with additional borrowing, and it may be inflationary if the Fed is forced to buy more US Treasury bills with newly printed dollars.
“Growing fears of inflation and fiscal risks could increase speculative positions and ETF flows,” he wrote, adding that “concerns about US debt sustainability could push central banks, especially those with large US Treasury reserves, to buy more gold.”
While idiosyncratic factors can drive gold buying (including the allocation of gold reserves by central banks or actively managing demand in key jewelery markets like India), a sustained rise in the price of gold during periods of uncertainty is often seen as a vote of confidence. The US dollar as a store of value, as well as other fiat-only government-backed paper currencies.
Trump’s tariffs could cost the average American household $2,600 a year
That concern has gained momentum amid widespread concern that Trump’s tenure could put upward pressure on consumer prices. The president-elect already has a penchant for imposing tariffs on imported goods like steel, if necessary based on legal arguments citing a threat to national security, to unilaterally impose them via executive order.
“The main upside risks to inflation under the second Trump administration on the supply side are much higher tariffs,” Goldman wrote.
For example, Trump has talked about imposing tariffs on all goods entering the market, up to 20%, with a special tariff of 60% on Chinese goods. Peterson Institute for International Economics estimates That could increase average annual spending in US households by $2,600.
To attack the independence policy of the Federal Reserve
Governments that are not happy with this would face a difficulty similar to that of the World Trade Organization dispute settlement courtThe Appellate Body has been dormant since then December 2019When the US started vetoing Trump’s new appointments.
Just as troubling has been his insistence that the White House gets a de facto say on monetary policy in addition to fiscal policy Ending the political independence of the Federal Reserve. In countries where this barrier has been broken, like Turkey, it can lead spiral inflation.
Gold has since been scratched at the cost of the standard 400 oz. The gold bar recently hit million dollars each one
