Speculative demand, escalating trade tensions, and concerns over the U.S. fiscal health could propel gold prices to record highs in the near future, according to a new study by Goldman Sachs.
Gold reached an intraday all-time high of $2,790 at the end of October, though it has since pulled back to around $2,600. Goldman Sachs suggests that the market’s recent consolidation—following the U.S. election—has created an attractive entry point for investors looking to buy gold.
Goldman Sachs Projects Bullish Outlook for Gold
Goldman Sachs anticipates strong demand for gold, particularly among central banks diversifying their reserves away from the U.S. dollar, especially after the Biden administration’s decision to freeze Russian assets in response to the invasion of Ukraine. Some central banks now view gold as a politically neutral asset that is less vulnerable to geopolitical risk compared to the U.S. dollar.
The bank also expects exchange-traded funds (ETFs) to drive up gold prices as investors seek to hedge against the potential effects of a U.S. Federal Reserve rate cut to between 3.25% and 3.5% next year.
Gold Price Could Reach $3,150 by 2025
Goldman Sachs projects that the price of gold could rise to $3,000 per ounce by the end of 2025, with potential for further gains. Geopolitical risks, coupled with the transition to the Trump administration, are expected to reignite speculative activity in the gold market. This could drive gold prices as high as $3,150 per ounce, as investors speculate on the economic consequences of Trump’s unorthodox policies and potential tariffs.
Inflation and Fiscal Risks May Boost Gold Demand
The widening U.S. fiscal deficit, which hit $1.83 trillion in the last fiscal year, could also fuel inflation fears and drive more demand for gold. Additional borrowing required to cover the deficit may force the Fed to print more money, a scenario that could erode the value of the U.S. dollar.
“Rising fears of inflation and fiscal risks could drive speculative positioning and ETF inflows higher,” Goldman Sachs noted, adding that concerns over U.S. debt sustainability may prompt central banks to increase their gold holdings.
Trump’s Policies Could Put Upward Pressure on Prices
Concerns over inflation under Trump’s policies are growing, especially regarding the potential for higher tariffs. Trump has proposed broad tariffs on imported goods, with a particular emphasis on a 60% tariff on Chinese goods. The Peterson Institute for International Economics estimates that such tariffs could cost U.S. households an additional $2,600 annually.
Goldman Sachs identified these tariff policies as a significant risk to inflation, which would likely boost demand for gold as a safe-haven asset.
Threats to Federal Reserve Independence Add to Market Uncertainty
Further concerns stem from Trump’s rhetoric on monetary policy. His insistence on greater White House control over the Federal Reserve’s decisions raises alarm bells for financial markets. Countries where political interference in central banks has occurred, like Turkey, have experienced skyrocketing inflation as a result.
In light of these uncertainties, gold has gained significant traction, with the cost of a standard 400-ounce gold bar recently surpassing $1 million.
Goldman Sachs’ report underscores the growing role of geopolitical and fiscal factors in shaping the gold market, with the potential for prices to climb as high as $3,150 per ounce by 2025.
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