Trump & Biden’s Impact on Gold

Gold (XAU) ended a 6-day losing streak on Monday, 18 November, on the back of a softer US dollar and rising safe-haven demand amid geopolitical turmoil.

The yellow metal ended the session 2% higher to $2,608 per ounce, leaving behind a 2-month low as Goldman Sachs (GS) reiterated its $3,000 target.

Despite markets largely expecting the Federal Reserve to cut interest rates in December, Donald Trump’s inflationary policies limit the scope for monetary policy easing in 2025.

Trump’s Nominations Add Uncertainty

With Trump’s policies expected to stoke inflation and limit the Fed's ability to cut rates, the dollar index (DX) witnessed some unwinding of the post-Trump rally on Monday due to uncertainty around his cabinet picks. A higher 10-year Treasury yield, which correlates with expectations of higher interest rates, signalled investors’ attempts to price out a more dovish stance.

Despite markets generally surging on Trump Trades, recent controversial picks have added uncertainty to upcoming nominations, including the Treaury pick responsible for US government debt, tax policy and the US dollar. A nomination supporting Trump’s pro-growth and pro-inflation fiscal plans could boost the dollar and weigh on gold prices.

However, President-elect Trump has made previous calls for a weaker dollar, with speculation around capital controls and tempering with the Fed increasing. Another possible but less likely devaluation policy would be to print money.

Although the short-term strength of the dollar could be challenging to manage, Trump’s tariffs after his first election in 2016 point to a weaker dollar. Notably, his protectionist tariffs are believed to boost demand for the safe haven as global trade is expected to encounter turmoil.

Biden ATACMS Approval Supports Gold

President Joe Biden allowed Ukraine on Monday to utilise Army Tactical Missile Systems, or ATACMS, to enable missile strikes 190 miles into Russian territory, disrupting the geopolitical landscape. The administration said the decision was taken following the installation of 10,000 North Korean recruits at Kursk. 

The escalation in tensions between Russia and the West/Ukraine comes on the heels of Trump’s pledges to end the war as soon as he gets inaugurated in January 2025. It marked a significant reversal of Washington’s previous stance, condemned by Russia, which said it places NATO in a risky position.

Rising tensions are seen as drivers of gold, which was indeed supported by a softer dollar on Monday. However, some market participants, such as Daniel Pavilonis of RJO Futures, believe gold looks primed to extend its gains regardless of whether the Fed cuts rates. (Source: Reuters)

Analysts Expect Higher Gold Prices

Recent US data in the US saw the December interest rate cut probability fall from 65% a week ago to around 58% on 19 November. Fed Chair Jerome Powell echoed this view last Thursday, saying that while growth and inflation remain above targets, there is little need to cut rates at the pace expected previously. 

BofA Global Research strategists argue that growth could fluctuate “very large in either direction” depending on whether the new administration focuses on fiscal easing and deregulation vs. tariffs, which could lead to a trade war. Previous tariffs on China, each tariff to be precise, and its reciprocal impact drove gold prices higher on market nervousness. 

All considered, Goldman Sachs reiterated its price target of $3,000 per ounce for gold in 2025, expecting the Fed to cut interest rates and central bank demand to increase under Trump. With North Korean troops deployed to help Russian forces, the risk remains to the upside. Gold is also expected to receive support from escalation in the Middle East.

Citi (C) forecasted a similar gold price back in September for the next six to twelve months. However, in the shorter term, particularly by the end of the year, BMI of Fitch Solutions sees a significant downside risk to gold prices in 2024 to $2,375.

Matthew Jones, precious metals analyst at London-based metals trader Solomon Global, expects the macro picture to support gold’s prices. (Source: Mining)

Conclusion

As uncertainty rises due to President Biden's approval of missile systems for Ukraine and President-elect Trump's cabinet nominations, gold prices rebounded on Monday. Despite some short-term risks amid a stronger dollar, analysts at Goldman Sachs and Citi expect gold prices to rise, driven to $3,000 by safe-haven demand. 

Although the uncertainty around Trump’s final picks and policies, interest rates, and potential geopolitical and trade tensions contribute to the potential for gold’s upside, traders are urged to be cautious of a rising dollar.