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In a report released late yesterday, CIBC significantly raised its gold price forecasts, seeing a more bullish outlook for bullion, especially in the event of a Trump presidency.
In light of the revised forecasts, understanding the reasons behind the changes and what drives the market can provide valuable insights for investors.
Key Takeaways:
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Gold:
- 2024: New forecast is $2,290/oz, up from the previous $2,100/oz.
- 2025: New forecast is $2,600/oz, up from the previous $2,000/oz.
- 2026: New forecast is $2,400/oz, up from the previous $1,900/oz.
- 2027: New forecast is $2,200/oz, up from the previous $1,875/oz.
- Long-term (2028 and beyond): New forecast is $1,975/oz, up from the previous $1,875/oz.
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Silver:
- 2024: New forecast is $28.75/oz, up from the previous $24.97/oz.
- 2025: New forecast is $34.50/oz, up from the previous $24.00/oz.
- 2026: New forecast is $32.50/oz, up from the previous $23.50/oz.
- 2027: New forecast is $30.50/oz, up from the previous $23.00/oz.
- Long-term (2028 and beyond): New forecast is $26.00/oz, up from the previous $23.00/oz.
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Market Drivers:
- The main driver for the change is central bank demand, which continues to play a significant role in the gold market.
- Retail demand in Eastern economies is also contributing to the strength of the gold market amid uncertainties in other investment options.
- ETFs, despite recent outflows, are expected to rebound with potential Fed cuts, indicating resilience in the market.
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US politics:
- A Trump presidency is seen as bullish for gold due to proposed policies that could impact the fiscal and monetary landscape.
- Silver also shows promise with growing industrial demand in key sectors such as solar and electrification.
Additional Insights:
Investors should pay attention to the evolving dynamics of central bank demand and retail investor sentiment to gauge the future trajectory of gold prices. With geopolitical uncertainties and potential policy changes on the horizon, gold and silver markets could see further shifts in the coming years.
Quotable:
If we marry the different starting positions (fiscal, monetary and valuation) with the policies articulated by Trump (bigger deficits, higher tariffs, less Fed independence), it is easy to see a better environment for gold prices if Trump repeats in 2024 – albeit Biden does not seem much more restrictive on deficits and tariffs. Given neither candidate seems concerned on fiscal positions coupled with a Federal Reserve (and to some extent all central banks) seemingly more comfortable with higher structural inflation, we believe a Biden second term shouldn’t be a negative for gold prices; but if Trump is re-elected (and follows through on his policy positions), the already impressive rally in gold prices likely continues into 2025.
Note that gold didn’t do well in the first Trump Presidency but CIBC notes that the fiscal situation is vastly different now with a deficit almost four times as large as it was in 2016 and interest payments eating up 15% of revenues compared to 6% in 2016 (and on the way to 22% in 2033).
