Gold catches investors' and traders' eyes as Trump returns to Washington

With a world of fast-moving markets out there, it's easy to forget about precious metals. In a time when stocks are increasingly volatile and digital assets can make and lose fortunes in a single day of trading, one can be forgiven for taking their eyes off age-old commodities like gold and silver. Indeed, many investors and traders had already written them off after the unprecedented global shutdown back in 2020-2022 failed to prompt a Bitcoin-like surge in the yellow metal. But seasoned gold bugs reminded us even then that precious metal cycles aren't known for their hare-like exuberance. Then, like the proverbial tortoise, gold slowly and steadily gained ground. Two years later, it's now sitting a healthy 50% above its November 2022 level at $2,659.10 as of 07 November 2024. 

Now, following Trump's US presidential election win, which seems to have provoked a sense of optimism in the market, there has been a slight decline amid a strengthening US dollar. But short-term knee-jerk reactions are always to be expected. What investors are interested in is where the yellow metal might be headed over the year ahead. To attempt to answer that question, we'll look at the main macroeconomic and internal political machinations liable to impact gold prices in the new year while also assessing the global geopolitical factors that will remain crucial for precious metals in 2025.

Right said Fed

On the macroeconomic stage, one of the biggest developments of recent times has been the US Federal Reserve's pivot towards a more dovish economic policy following a 50-bps rate cut in September. Now, a third 25-bps reduction is all but assured when the FOMC meets on 7 November, with the CME's FedWatch tool rating the likelihood of another cut at over 90%. As any investors and traders will surely be aware, lower interest rates are great news for risk assets since they decrease the appeal of fixed-income instruments and thus boost interest in higher risk-to-return ratio vehicles.

However, a side effect of a more dovish central bank policy tends to be a weaker currency. And in the case of the world reserve, the US dollar, this is also favourable for perhaps the most risk-off asset there is: gold. Though the greenback has rallied 3% on news of a Trump presidency, this is likely to be short-lived. Eventually, the optimism will have to give way to normal market forces. Even if inflation does remain around the 2% target and the labour market relatively strong, gold is expected to continue its stable yet fairly vigorous growth for as long as the dovish Fed sentiment persists.

Out of the frying pan into the fire

The world has been poised on a knife-edge for the past two years as geopolitical uncertainty reigns both in Europe and, more recently, the Middle East. It's almost certain that this instability has helped the famous crisis hedge make some of its gains over these past 24 months.

Trump has famously pledged to end the conflicts in both of the aforementioned flashpoints. That said, it is yet to be seen whether he will be able to make good on this promise. And even if he is able to extinguish some of the fires that are already burning, his vocally hostile position on Iran has the potential to provoke further escalation between Israel and Tehran or even a wider regional war. As terrible as that would be for the world as a whole, the potential upside for gold following such a development would be huge. Regardless of what Trump does or doesn't do in the Middle East, his general unpredictability and volatile nature will also provide an element of latent uncertainty over the next four years that can only be considered a positive factor for gold.

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