After last week's strong rebound, gold prices fell again due to factors such as Trump's Treasury Secretary appointment and traders taking profits, but UBS's commodity analysts stated that gold still has strong tailwinds, with prices expected to rise to $2900/ounce next year.
Analysts noted that the price of spot gold fell on Monday, nearly erasing Friday's gains, and gold showed a volatile trend on Tuesday.
"This pullback reflects profit-taking after five consecutive days of rising gold prices and the impact of Trump's nomination of Basant as Treasury Secretary."
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The policy changes brought by the incoming Trump administration have made the economic situation more complex. Trump's proposed economic strategies, including high tariffs on imports from Canada, Mexico, and China, have attracted the attention of financial analysts. Saxo Bank pointed out that Trump's tariffs, tax cuts, and potential deportation plans could lead to high inflation, making gold an attractive safe-haven asset for investors seeking to hedge against economic uncertainty.
Analysts added that Basant is viewed as a 'fiscal hawk,' and his nomination may alleviate concerns about the new government's plans regarding the federal deficit and implementation capabilities. Meanwhile, investors are still awaiting more signals regarding the Fed's future interest rate cut path. According to CME's "FedWatch," the probability of the Fed maintaining current rates in December is 37.2%, while the probability of a cumulative 25 basis point cut is 62.8%.
The Federal Reserve's overnight release of the November meeting minutes provided important insights into the U.S. economic outlook. Federal Reserve officials expressed increasing confidence in the economic trajectory, particularly regarding inflation and the labor market. The minutes indicated that policymakers believe inflation is gradually moving toward the Fed's 2% target, while the current labor market performance is strong.
Interestingly, the Fed's minutes noticeably lack detailed discussions about the potential policy impacts of Trump. Although officials acknowledged the general uncertainty surrounding economic conditions, they remain cautious about a "neutral" interest rate level that neither stimulates nor restrains economic growth.
UBS believes that the continued volatility in gold prices is foreseeable, "because inflation, interest rates, geopolitical issues, and upcoming U.S. trade policies are sending conflicting signals." Analysts stated:
"We believe there is still room for gold prices to rise further, with a target of $2900/ounce by the end of 2025... Gold remains a useful hedging tool amid geopolitical tensions and fiscal concerns."
UBS precious metals strategist Joni Teves stated at the end of October that gold still has strong support, even though the price was already close to $2800/ounce at that time, and investors' allocations remained relatively low.
"Our view on gold remains optimistic," she said. "Looking ahead to next year, the outlook is quite positive. The Federal Reserve's loose monetary policy will continue to support gold, and the fundamentals remain favorable. We expect central banks to continue purchasing gold, and even if prices continue to rise, physical demand will remain resilient."
UBS also believes that there is significant room for growth in investor allocations to gold. Teves added, "Overall, we think the market's allocation to gold is still insufficient, so there is more potential for increasing allocations."
Article forwarded from: Jinshi Data