Rising trade tensions and concerns over the sustainability of the U.S. fiscal balance sheet could help fuel gold prices in the coming year, according to a Goldman Sachs study.
The precious metal hit an intraday high of $2,790 late this October, after the World Gold Council warned in its quarterly demand trends report that the market had succumbed to FOMO. Fear of missing out. It has since pulled back during November, and is currently trading at around $2,600.
“The stability in gold prices after the tight US election – speculative positioning from near all-time highs – provides an attractive entry point to buy gold,” he said in a 2025 outlook for commodities published on Sunday. But said in a research note.
Goldman Sachs expects strong underlying demand for bullion among central banks to permanently diversify their reserves from their current allocation of U.S. dollars after the Biden administration froze Russian assets as punishment for its invasion of Ukraine. want to make Some banks see gold as a more politically neutral asset that countries can’t freeze due to geopolitical risk.
Exchange-traded funds will also bid up the price, Goldman predicted, due to cyclical inflows from investors influenced by the Federal Reserve’s forecast to raise interest rates to between 3.25% and 3.5% next year. want to hedge their portfolio against
Bullion could rise to $3,150 an ounce by the end of 2025.
The Wall Street investment bank believes that as a result, gold bullion should trade at $3,000 an ounce by the end of next year.
But now the bank predicts that geopolitical risks could prompt speculators, who have been active recently, to return as Trump’s transition team shocks markets with its unconventional policies and cabinet appointments. .
That could send gold prices as high as $3,150 an ounce as speculation begins to mount on whether the U.S. economy will saddle its trading partners with new punitive tariffs as the country grapples with its massive fiscal deficit. is increasingly struggling to meet
Gold’s vote of no confidence in paper currencies backed by government fiat.
The $1.83 trillion budget shortfall from this past fiscal year through September had to be covered by additional borrowing, which could lead to inflation if the Fed is forced to buy more U.S. Treasury notes with freshly printed dollars.
He wrote, “Elevated concerns about inflation and financial risks may increase speculative positioning and ETF flows.
While idiosyncratic factors can drive gold purchases—including central banks allocating their gold reserves or actively managing demand in key jewelry markets like India—during periods of uncertainty, the gold price will remain buoyant. Continued increases in the broad spectrum are often seen as a vote of no confidence. The US dollar as a store of value, as well as other fiat currencies, is fully backed by the government.
Trump’s tariffs could cost the average American household $2,600 a year.
The concern has gathered steam amid widespread concern that pressure on consumer prices could increase under Trump. The president-elect already has a penchant for imposing tariffs on imported goods like steel—if necessary, relying on legal arguments that there is a threat to national security to unilaterally impose them via executive order.
“On the supply side, the main risks to inflation under the second Trump administration are too many tariffs,” Goldman wrote.
For example, Trump has talked about imposing tariffs of up to 20% on all goods brought into the market, with a special 60% tariff on Chinese goods. The Peterson Institute for International Economics estimates that this could add $2,600 to annual spending for American households.
Freedom to attack Federal Reserve policy
That will make it difficult for disgruntled governments because the World Trade Organization’s dispute settlement tribunal, the appellate body, has been inactive since December 2019, when the U.S. first began vetoing new appointments under Trump.
Just as troubling has been his insistence that the White House get direct input on monetary policy in addition to fiscal policy, which erodes the Federal Reserve’s political independence. In countries where this barrier is breached, like Turkey, it could lead to inflation.
With the standard 400-ounce price, gold has been on a tear since. Gold bars recently hit $1 million each.
