Can the price of gold Go for $2,700/oz Now?

Last week was a pretty tough one for gold bulls. The price of gold fell over 40% over the course of just six days, the worst performance since the middle of the pandemic back in 2021. But this week, prices have rebounded, taking back some of the losses. The problem is, the reason for the rebound is one most of us hope is temporary.

Taking a step back, however, some analysts are making the case that gold is reacting to short-term situations for the moment. But once things settle down, the broader trend will reassert itself. That has led some prominent analysts to suggest that gold could hit $2,700/oz, with Goldman Sachs telling its clients to buy gold going into 2025.

Where Does the Roller Coaster End?

The recent downturn in gold has largely been as a result of the “Trump Effect”. With markets apparently haven being taken by surprise that the 45th President will also be the 47th, futures markets have moved to price in fewer rate cuts by the Fed. That elevated yields on Treasuries, which has the natural impact of lowering the price of gold.

That phenomenon got interrupted this week when Russia updated its nuclear doctrine in apparent response to the White House authorizing American-made long range missiles to be fired by Ukraine into Russian territory. The threat of escalation in the conflict sent many traders towards safe havens, giving gold a boost. If the tensions ease, then the recent gains could fade. Then traders’ attention will return to what they expect out of the Fed.

Short Term vs Long Term

Markets are pricing in around a 50-50 chance the FOMC will ease rates by a quarter of a point. That is what the Fed essentially predicted with its dot-plot matrix back in September, though Fed Chair Jerome Powell suggested that prediction might not be accurate in light of the electoral results. He said that it wasn’t time to make forecasts about rate policy, adding uncertainty about what to expect in the meetings of December and January. After that, there will be more clarity on what Trump’s policies are, and how they will affect monetary policy.

But, in the end, the Fed is still going to ease. Even the more hawkish outlook for rates sees easing through the course of next year. Those lower interest rates would likely end up supporting gold as a general trend, even if there are short-term hiccups like the result of the election. This seems to be the case that the bullish analysts are marking.

Inflation: Good or Bad for Gold

The other factor to keep in mind is that interest rates are expected to be higher because inflation is expected to be higher. The thought is that a Trump administration will see a faster growing economy, which is pro-inflationary. The expected application of tariffs is seen raising prices as well.

Gold is a traditional reserve against inflation, and that could end up offsetting the impact from the change in interest rate expectations. That means the yellow metal could keep or even increase its price in dollars if the value of the greenback is eroded from inflation. However, it might be months if not years for this effect to be noticed.

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