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In a report released late yesterday, CIBC raised its gold price forecasts significantly, predicting a more bullish outlook for bullion, especially in the event of a Trump presidency.
Main points:
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gold:
- 2024The new forecast is $2,290 per ounce, up from $2,100 per ounce previously.
- 2025The new forecast is $2,600 per ounce, up from $2,000 per ounce previously.
- 2026The new forecast is $2,400 per ounce, up from $1,900 per ounce previously.
- 2027The new forecast is $2,200 per ounce, up from $1,875 per ounce.
- Long term (2028 and beyond)The new forecast is $1,975 per ounce, up from $1,875 per ounce previously.
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silver:
- 2024The new forecast is $28.75 per ounce, up from $24.97 per ounce previously.
- 2025The new forecast is $34.50 per ounce, up from $24.00 per ounce previously.
- 2026The new forecast is $32.50 per ounce, up from $23.50 per ounce previously.
- 2027The new forecast is $30.50 per ounce, up from $23.00 per ounce previously.
- Long term (2028 and beyond)The new forecast is $26.00 per ounce, up from $23.00 per ounce previously.
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Market drivers:
- The main driver of change is demand from central banks. “We don’t see demand from central banks dissipating significantly anytime soon.”
- “Demand for gold remains strong, with central banks continuing to buy gold driven by a long-term strategy to diversify the US dollar and, in some cases, efforts to protect foreign exchange reserves from sanctions.”
- Retail demand, especially in eastern economies, remains strong as investors seek to preserve their wealth amid weak stock and property markets.
- Central banks such as China, Russia and India hold between 1% and 3% of their foreign exchange reserves in gold, far below European central banks’ more than 10%, a level the People’s Bank of China has repeatedly cited in the past as more ideal. Gold fell this week after data showed the People’s Bank of China was not 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.
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American Policy:
- A Trump presidency would be a major boost to gold because of policies that favor high deficits, tariffs, and potential pressure on the independence of the Federal Reserve. Just extending the tax cuts would add $3 trillion to the deficit over the next decade.
- 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.
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Silver Market Overview:
- Industrial demand for silver, especially in the solar and electricity sectors, is expected to rise, widening the supply deficit.
- The gold to silver ratio is expected to shrink, which is in favor of silver prices.
quote:
If we combine the different initial stances (fiscal, monetary, and valuation) with the policies that Trump has articulated (higher deficits, higher tariffs, less independence from the Fed), it is easy to see a better environment for gold prices if Trump is re-elected in 2024 – albeit Biden does not appear to be more restrictive on deficits and tariffs. Given that neither candidate seems to be interested in fiscal stances and the Fed (and to some extent all central banks) seems more comfortable with higher structural inflation, we believe that a second Biden term should not be negative for gold prices; but if Trump is re-elected (and follows through on his policy positions), the already impressive rally in gold prices is likely to continue into 2025.
Note that gold did not do well in Trump’s first presidency, but CIBC notes that the fiscal situation is very different now with a deficit nearly four times larger than in 2016 and interest payments eating up 15% of revenues compared to 6% in 2016 (and on track to 22% in 2033).
