(Kitco News) - Elevated volatility is taking its toll on the gold market as prices struggle to attract consistent bullish momentum.
However, one research firm remains bullish on the precious metal and expects prices to continue rising as long as central banks maintain their gold-buying activity.
Gold prices have struggled as President-elect Donald Trump continues to promote his America-First policies, which have bolstered the U.S. dollar. However, in her latest report, Roukaya Ibrahim, Commodity Strategist at BCA Research, said these policies could ultimately backfire on Trump.
“The new U.S. administration’s use of ‘maximum pressure’ and ‘fire and fury’ tactics will cement EM central banks’ interest in raising the share of gold in their reserves. Therefore, we expect the tailwind to gold from central bank purchases – which remain elevated by historical standards – to persist going forward,” she said in the report.
In the current environment, the Montreal-based research firm recommends buying gold on dips as it maintains its long position.
“Gold is the major commodity that is best suited to benefit from the new U.S. administration’s policies. Increased global policy uncertainty will support demand for the yellow metal,” Ibrahim said.
Along with heightened geopolitical uncertainty fueled by Trump’s policies, Ibrahim said it is unlikely the new administration will bring government spending under control, and rising deficits should provide another pillar of support for the precious metal.
“As a hedge against inflation, gold may benefit in this scenario,” she said.
While BCA is maintaining its bullish outlook on gold, Ibrahim noted that the market is not without risks in 2025.
She explained that gold has managed to hold critical support levels as the Federal Reserve embarks on a new easing cycle. However, she added that new government policies driving inflation could impact interest rate cuts and create a headwind for gold.
“Specifically, the Fed could adopt a tighter monetary policy stance in response to the new administration’s likely economic policies. An expansion of the fiscal deficit could prompt the Fed to hold back on rate cuts. Moreover, given the high inflation environment of the past few years, policymakers may not be willing to look through any tariff-induced inflation surge – even if it is likely to be transitory,” she said.
BCA expects gold to continue outperforming in the commodity sector. The firm anticipates elevated volatility in the oil market but added that the path of least resistance is lower. At the same time, it also predicts weaker copper prices as the global economy could struggle in the face of escalating tit-for-tat tariffs.
