(Kitco News) - The gold market is treading water above $2,600 an ounce as the Federal Reserve prepares for a shorter easing cycle in 2025. However, one fund manager notes that the U.S. central bank will walk a very fine line next year as it deals with a new administration and stubborn inflation.
In a recent comment to Kitco News, Julia Khandoshko, CEO of the European brokerage firm Mind Money, reiterated her call that gold prices will rally above $3,000 an ounce, due in part to growing uncertainty surrounding U.S. monetary policy.
Although gold has struggled in recent weeks because of stubborn inflation, Khandoshko said that the Federal Reserve's actions could be limited.
Last week, the Federal Reserve signaled in its updated economic projections that it expects to cut interest rates only two times next year. Khandoshko speculated in her note that the U.S. central bank might be more dovish than it expects next year.
“It seems that the Fed is becoming a hostage to the policies of Donald Trump. In the past, Jerome Powell's office has been cautious and avoided harsh decisions, arguing that the key rate is a tool, not an end goal. However, under the new administration, the market, as well as the very logic of the updated economic policy, requires a rapid reduction in rates,” she said in her note.
“The Fed simply will not be able to act contrary to the course of the new administration. For gold, such dynamics are extremely profitable. High inflation and low rates create ideal conditions for the growth of its value. Therefore, it is expected that interest in gold will only increase, and its price will continue to rise,” she added.
At the same time, a growing number of economists note that the Federal Reserve faces a difficult environment as the U.S. economy and labor market continue to slow, even as inflation remains elevated.
Analysts note that a stagflationary environment will be positive for gold as elevated inflation in a slow-growth environment will drive real yields lower.
