Trump gold bars
AI image

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.

Key Takeaways:

  1. 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.

  2. 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.

  3. Market Drivers:

    • The main driver for the change is central bank demand. "We do not see central bank demand materially dissipating any time soon."
    • "Demand for gold remains strong, with central banks continuing to purchase gold driven by a longstanding strategy of USD diversification and, in some cases, efforts to sanction-proof FX reserves."
    • Retail demand, especially in Eastern economies, remains robust as investors seek wealth preservation amidst soft stock and real estate markets.
    • Central banks such as China, Russia and India possess gold holdings at 1-3% of foreign exchange reserves, well below European central banks at over 10%, a level PBoC has in the past repeatedly noted it sees as more ideal. Gold slumped this week on data showing the PBoC wasn't buying but they expect that to reverse
    • ETFs have been a weak link but despite recent outflows, they are expected to reverse course with Fed cuts

  4. US politics:

    • A Trump presidency would be particularly bullish for gold due to policies favoring higher deficits, tariffs, and potential pressure on Federal Reserve independence. Simply extending the maturing tax cuts would add US$3 trillion to the deficit over the next ten years.
    • While a second term for Biden is also seen as positive for gold, Trump's approach could create a more inflationary environment, further boosting bullion prices.

  5. Silver Market Outlook:

    • Industrial demand for silver, particularly in solar and electrification sectors, is expected to rise, adding to a supply deficit.
    • The gold-to-silver ratio is projected to contract, benefiting silver prices.
gold ETF holdings

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).