(Kitco News) - The U.S. Presidential Election is only four months away, and while geopolitical uncertainty is supporting a safe-haven bid in gold, this could be just the start of a broader rally for the precious metal, according to one Canadian bank.
On Wednesday, commodity analysts at CIBC Capital Markets raised their gold price forecast for this year and 2025 as they look past November’s election.
The analysts noted that gold could see bigger gains during a second Trump presidency, though they think the precious metal should do well with either candidate as the U.S. deficit continues to grow.
“The run in gold prices this year is already impressive,” the analysts wrote in the report. “It is hard to discern the precise cause, but the fact that neither candidate seems concerned about the fiscal position of the U.S. government must certainly be a factor. As well, it does seem the Federal Reserve (and to some extent all central banks) are more comfortable with higher structural inflation. All this is to say we believe a Biden second term should not be a negative for gold prices, but if Trump is re-elected and he follows through on his policy positions, gold could have another run.”
Looking at CIBC's updated forecasts, the Canadian bank sees the yellow metal averaging around $2,290 an ounce this year before rising to an average price of $2,600 an ounce in 2025.
CIBC also raised its average silver price forecast to $28.75 for this year and sees the grey metal averaging around $34.50 in 2025.
Taking a closer look at President Joe Biden and former President Donald Trump, CIBC said that it sees three key differences between he two candidates: taxation, trade, and Federal Reserve oversight.
The analysts explained that Trump’s proposal to make his tax cuts permanent would increase the U.S. deficit by $3 trillion over the next decade.
While Biden looks to increase the corporate tax rate, CIBC said that he has an aggressive spending track record.
On trade, both candidates have proven to be protectionists as Biden has maintained Trump’s tariffs and even imposed new tariffs, specifically on Chinese-made electric vehicles.
However, given Trump’s recent rhetoric, CIBC expects him to initiate even more aggressive action.
“One of the most concerning is the threat (embellished substantially by Trump’s former Trade Representative, Robert Lighthizer) to tariff Chinese goods at 60% across the board,” the analysts said. “This would be done by revoking China’s most favored nation status as a trade partner.”
However, the biggest impact on gold is related to the Federal Reserve as it looks to embark on a new easing cycle.
“Trump has indicated he would seek to reduce the independence of Fed decision-making,” the analysts said. “Certainly, central bankers have lost credibility for inflation anticipation, but a Federal Reserve with heavy political oversight would be a recipe for very dovish interest rate policy. Lower short-term rates would certainly be stimulative, as would any attempt to manage the long end of the yield curve lower through quantitative easing.”
