(Kitco News) – The outlook for oil prices next year is becoming more bearish as Trump’s agenda takes shape, but the key drivers of the gold rally remain in place, and gold prices are projected to continue rising in 2025, according to Max Layton, global head of commodities research at Citi.
Layton said the backdrop for oil was already quite bearish following the election, and that was before the base case included Trump levying significant tariffs on Chinese imports during the first quarter of 2025.
“The prospect of using tariffs to fund some kind of reduction in the budget deficit, or at least not growth in the budget, is going to potentially hang over the market, so tariffs related to that is going to be an issue in 2025,” he told CNBC International. “More broadly, I think Trump […] is going to be quite net bearish for oil. A lot of the statements that he said have been about how he wants to encourage drilling in the U.S., [and] Bessant has talked about three million barrels more supply growth over the term in the U.S.”
“You've got talk about stopping wars, not starting them, and we've done a lot of work in this annual outlook looking at the impact of what could happen if there's significant geopolitical de-escalations both in the Middle East and across Russia-Ukraine.”
Layton said that this geopolitical de-escalation would free up a lot of oil. “It would loosen or at least increase the visible inventory, as we think, and loosen some of the balance impact on the market,” he said.
He added that even if Trump doesn’t deliver on 100% of his promises, the scenario is still bearish for oil prices in 2025.
“In the base case, for example, we have Trump delivering directionally on most of his promises but not fully, certainly not in the first year,” Layton said. “So directionally, some more tariffs, directionally some de-escalation either in the Middle East or with Russia-Ukraine, but not necessarily in both. For example, we don't have Iran continuing to produce at full capacity for the next six to 12 months, we are assuming some impact. We're going to lose 200-300,000 barrels for the first couple of quarters of next year in the base case. But even with that, overall, it's still directionally net bearish for oil.”
He then turned to Citi’s projections for gold prices, which, unlike oil, remain very bullish despite the standout year the yellow metal enjoyed in 2024.
“It's been a spectacular year for gold,” he said. “I mean, you zoom out on a 50-year chart, and you can see this bull market. That's usually a sign that it's been quite a significant bull market.”
Layton said the bank expects the strong bull market to continue. “There's a couple of reasons,” he said. “One is that we've introduced a fundamental physical flows-based framework for gold pricing, which gives us some confidence that the underlying drivers of this bull market, which has been investment from central banks but also investment from wealthy OTC investors, and investors more generally who are concerned about high interest rates in the U.S. high debt levels in the U.S.”
“There's any number of concerns that people have,” he added. “Higher equity valuations, you've got people buying gold as a hedge against the medium-term impact of a U.S. slowdown. The U.S. has been slowing down for two years, two and a half years now, the labor market's been slowing down for two and a half years, real interest rates are still around 15-year highs. People are concerned about some of these things.”
“Until those things go away, there's going to be a lot of gold investment buying as a hedge,” Layton said. “And obviously, the central bank buying is for pretty structural reasons that aren't going away anytime soon as well.”
Gold prices are continuing to build on their strong performance to start the week, with spot gold rising as high as $2,691.94 on Tuesday morning, and last trading at $2,687.93 per ounce for a gain of 1.04% on the session.
Sponsored by Matador Technologies Inc. - Bringing gold and real-world assets to Bitcoin.
Visit https://www.matador.network/kitco.
