With the U.S. Presidential Election only four months away, geopolitical uncertainty is supporting a safe-haven bid in gold, and one Canadian bank believes this could be the start of a broader rally for the precious metal.
Commodity analysts at CIBC Capital Markets raised their gold price forecast for this year and 2025, looking beyond November’s election. They noted that gold could see bigger gains during a second Trump presidency but would likely perform well with either candidate due to the growing U.S. deficit.
“The run in gold prices this year is already impressive,” the analysts stated. “It is hard to discern the precise cause, but the fact that neither candidate seems concerned about the fiscal position of the U.S. government must certainly be a factor. Additionally, it appears the Federal Reserve (and to some extent all central banks) are more comfortable with higher structural inflation. We believe a Biden second term should not negatively impact gold prices, but if Trump is re-elected and follows through on his policy positions, gold could have another run.”
CIBC’s updated forecasts predict gold averaging around $2,290 an ounce this year and rising to an average price of $2,600 an ounce in 2025. The bank also increased its average silver price forecast to $28.75 for this year, with the grey metal expected to average around $34.50 in 2025.
Analyzing the potential impacts of President Joe Biden and former President Donald Trump, CIBC highlighted three key differences between the candidates: taxation, trade, and Federal Reserve oversight. They explained that Trump’s proposal to make his tax cuts permanent would increase the U.S. deficit by $3 trillion over the next decade, while Biden’s plan involves increasing the corporate tax rate and has an aggressive spending track record.
On trade, both candidates have shown protectionist tendencies. Biden has maintained Trump’s tariffs and imposed new ones, particularly on Chinese-made electric vehicles. However, CIBC expects Trump to take even more aggressive action, potentially threatening to tariff Chinese goods at 60% across the board by revoking China’s most favored nation status.
The most significant impact on gold could come from the Federal Reserve as it embarks on a new easing cycle. “Trump has indicated he would seek to reduce the independence of Fed decision-making,” the analysts noted. “Central bankers have lost credibility for inflation anticipation, but a Federal Reserve with heavy political oversight would likely lead to very dovish interest rate policy. Lower short-term rates and any attempt to manage the long end of the yield curve lower through quantitative easing would certainly be stimulative.”
In summary, CIBC Capital Markets foresees a robust future for gold, driven by fiscal policies, trade stances, and potential shifts in Federal Reserve oversight, irrespective of the U.S. election outcome.
