By David Brough
Gold price trends are likely to pivot on the trajectory of possible U.S. interest rate cuts amid concerns that policies by the incoming Trump administration could underpin inflation.
Gold was up 0.25 percent to USD $2,682.01 per ounce on January 15, 2025.
Gold prices were focused on U.S. producer and consumer price inflation data in mid-January that could give clues about whether or not the U.S. Federal Reserve could slow down the pace of expected rate cuts.
Lately, sentiment has been that interest rate cuts may not unfold as vigorously as had been initially expected, weighing slightly on gold prices.
The incoming Republican Donald Trump administration, which takes office on January 20, 2025, has vowed to implement tariffs, which raise risks of a trade war and could stoke inflationary pressures, possibly slowing down U.S. rate cuts and weighing on gold prices.
Furthermore, President-elect Trump’s plans to cut taxes could boost disposable income in the world’s largest economy, and raise demand for goods and services, potentially adding further to inflation.
However, uncertainty in the geopolitical outlook, notably in terms of U.S. trade with leading partners including Canada and Mexico against a backdrop of tariff expectations, and U.S. policy on the Panama Canal and Greenland, could trigger “safe haven” buying of gold.
In a recent interview with Kitco News, Chris Mancini, associate portfolio manager of the Gabelli Gold Fund (GOLDX), said that the main catalyst he is watching is ongoing economic uncertainty and its impact on consumer prices.
“What happens with inflation will determine what happens to gold,” he said.
“The bottom line is that the Republican agenda is inflationary in that tax cuts will push more liquidity into the system,” he said.
Markets are currently pricing in only one U.S. rate cut this year, Kitco News reported.
However, Mancini said that a possible global trade war could slow the economy and weaken the labour market.
“Weakness in the labour market will prompt the Federal Reserve to cut rates even if inflation remains elevated,” Kitco News quoted him as saying. “If the market starts to sniff some stagflation, then I think gold will do well.”
Disclaimer: Any opinions expressed in this article are solely those of the author and should not be construed as investment advice.
