Gold is on the cusp of one-month highs amid increased focus on incoming US President Donald Trump’s policies. The precious metal is once again above the $2700 an ounce level amid renewed interest in safe havens owing to uncertainty about the incoming US administration policies.
Trump Policies Uncertainty
The precious metal has also received support in the aftermath of weaker economic data, including PPI and XCPI figures. Gold prices were upbeat after core US inflation increased by 0.2% in December after rising by 0.3% in four consecutive months. The weaker-than-expected economic data has reaffirmed suggestions that the US Federal Reserve would be forced to cut interest rates much faster.
Rate futures traders are pricing almost equal odds of two rate cuts by year-end after US data released on Wednesday revealed softer-than-expected core inflation, increasing bets on a rate cut. Fed Governor Christopher Waller echoed this sentiment, stating that three or four cuts may be feasible if US economic data continues to deteriorate. While lower rates increase the appeal of the non-yielding asset, gold is regarded as an inflation hedge.
Nevertheless, it is a concern that Donald Trump will impose a string of tariffs on allies that continue to fuel demand for gold. Trump is triggering a trade war with other economic powerhouses, such as Canada, which continues to send jitters to the investment community. The net result has been traders scampering for safety in safe havens such as gold.
Investors fear that the possibility of tariffs following Donald Trump’s reelection next week could increase inflation and restrict the Fed’s ability to cut interest rates further. The demand for gold as a safe haven is expected to be sustained by the uncertainties surrounding Trump’s trade policies and tariffs for the global economy and their possible effects on growth.
Unending geopolitical tensions in the Middle East is another factor that is offering support to higher gold prices. Israel carrying out strikes and killing at least 77 people in Gaza hours after a ceasefire deal was reached also continues to trigger demand for safe havens.
Gold 2025 Outlook
While gold was up by about 28% in 2024, HSBC chief precious metal analyst James Steel does not expect it to replicate the same feet. According to the analyst, the markets are entering a new paradigm characterized by reduced physical demand and higher supply, which will curb significant price gains as the ones experienced in yesteryear.
A stronger US dollar will make it harder for gold to continue to rise. According to Steel, the dollar index (DXY) recently crossed above 110 for the first time in three years and is expected to continue to increase as long as the Federal Reserve’s outlook for additional interest rate cuts remains uncertain and the US performs better than its G-10 counterparts. In 2024, the dollar index, which compares the US dollar to a basket of other world currencies, increased by almost 7%.
Nevertheless, gold is likely to shrug off dollar strength, as has been the case in recent months. Strong physical demand for the precious metal and increased purchasing from central banks are likely to offer much-needed support for higher gold prices.
