Will gold prices soar if Trump returns to the White House?

The recent price behaviour of gold has underlined its importance as a safe-haven asset even at a time of rising currencies and a shifting macroeconomic scenario. 

Gold prices on COMEX had touched a near one-month high on Friday on uncertainty over the monetary policy of the Federal Reserve and over US President-elect Donald Trump’s tariff narrative. 

“As the new week gets underway, the precious metal finds itself beginning on the back foot as traders adjust their positions and evaluate the most recent economic data that may be absolutely crucial in determining the direction of Federal Reserve monetary policy,” according to a Kitco.com report. 

Nevertheless, gold’s rally over the last couple of weeks has been impressive. 

As markets get closer to the inauguration day of Donald Trump on January 20, the anticipation of how gold will behave in the coming months is likely to keep traders and investors interested. 

Focus on Trump’s policies

According to experts, if Trump’s policies are seen as favourable for the yellow metal, then gold will be a prominent asset for investors in the next few months. 

On Monday, Bloomberg reported that the Trump administration was preparing a plan for gradual imposition of trade tariffs in the upcoming months. 

The plan is likely to include tariffs increases of 2% to 5% every month, and will give the US leverage in trade negotiations, according to the report. 

The small increases in tariffs will also prevent a sudden spike in domestic prices and flaring up inflation. 

Gold benefited from the initial uncertainties surrounding Trump’s proposed tariffs.

The uncertainties had increased safe-haven demand for the precious metal.

However, the latest Bloomberg report claimed that the Trump administration may factor into higher inflation in the US. 

If higher inflation is indeed factored into while raising the tariffs, it would mean that the US Fed could have more room to cut rates. 

Lower rates bode well for gold as it is a non-yielding asset unlike US bonds. 

“Should Trump genuinely urge the Federal Reserve to lower rates or take a more accommodating posture, gold prices would rise,” Kitco.com said in the report.

Therefore, any dovish signals from the Fed or the US government may inspire (a) fresh optimistic attitude in the gold market, therefore maybe driving prices higher. Still, this is hardly clear, and much will rely on how the political environment and economic statistics develop in the next months.

Additionally, Trump had also been vocal about his criticism of higher interest rates.

Therefore, his return to power provides optimism over a more dovish monetary policy by the Fed.

Particularly in order to increase economic development, there is conjecture that Trump’s government would advocate reduced interest rates.

Robust economic data

On Friday, the US non-farm payroll data showed a sharp increase in job creation in the country. 

The data showed that 256,000 jobs were created, which was much more than the projected 164,000 figure.

The unemployment rate also fell to 4.1% from 4.2% earlier.

The robust labour market in the US signals that the Fed may be prompted to slow down its rate-cutting cycle. 

“The upbeat US Nonfarm Payrolls report released on Friday reinforced bets for a slower pace of interest rate cuts this year. This acts as a tailwind for the US bond yields and the USD, which, in turn, keeps a lid on any meaningful appreciating move for the non-yielding Gold price,” Haresh Menghani, editor at FXstreet, said in a report. 

Focus this week will be on the release of the US consumer price index inflation on Wednesday.

The data is expected to provide further cues about the outlook of the monetary easing by the Fed.

Kitco.com said:

Higher inflation would also imply that the Fed could be compelled to remain hawkish, thereby maintaining rates higher for longer, which would be negative for gold.

Uncertain US political situation

However, the anticipation of more trade tariffs and as Trump’s inauguration day beacons, gold prices may remain supported for the time-being, according to analysts at Commerzbank AG. 

Additionally, the relation between the dollar and gold is inconclusive in the short term.

But, over a longer period, gold becomes more expensive when the dollar remains high.

“However, they show strength at the same time when both are being sought as safe haven investments in the face of an uncertain global political situation. This currently appears to be the case, even if some of the global uncertainty stems from the US and the President-elect himself,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said. 

At the time of writing, the February gold contract on COMEX was at $2,683 per ounce, up 0.2% from the previous close.

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