Trump Becomes a Gold "Tycoon," Next Target $3,500?

Author: Yang Dapan

On Friday, gold once again set a new historical high, surpassing the $3,000 mark predicted by many Wall Street investment banks. Since the beginning of the year, this precious metal has risen nearly 15%.

WisdomTree commodity strategist Nitesh Shah stated, "The risk for gold is slightly skewed to the upside, as market confidence in gold is strong at the moment. If this chaotic policy-making continues, this confidence may persist."

U.S. President Trump's tariffs have played a significant role in increasing gold demand. The global trade war has disrupted financial markets and raised concerns about an economic recession, with Trump threatening on Thursday to impose a 200% tariff on alcohol imported from Europe, escalating the trade war.

Ole Hansen, head of commodity strategy at Saxo Bank, said, "Momentum and safe-haven demand driving increased ETF holdings also support gold prices."

The world's largest gold-backed ETF, SPDR Gold Trust, reported its holdings at 905.81 tons, having reached the highest level since August 2023 at the end of February.

Despite everyone's focus on this target, one bank stated, even if this threshold is breached, the upward trend in gold is far from over.

The commodity team at Macquarie Bank, led by Marcus Garvey, updated its gold price forecast for 2025 on Thursday, now expecting the precious metal to rise to a high of $3,500 per ounce in the third quarter, comparable to the inflation-adjusted historical high for gold set in January 1980.

As Macquarie updated its price forecast, the trading price of gold had already reached the bank's second-quarter target.

Analysts noted, as the bank's economists expect global economic growth to drop to 0.3% in the third quarter, gold remains an important safe-haven asset.

Macquarie analysts stated in their report, "We believe that the strength of gold prices so far, and our expectation for its continued strength, is primarily due to investors and official institutions being more willing to avoid risk. This is reflected in its nominal historical price peak (at $2,956 per ounce on February 24), even though the opportunity cost of holding gold (as a zero-yield asset) is relatively high."

In addition to gold's safe-haven appeal, Macquarie Bank also believes that the deteriorating outlook for the U.S. government's growing debt is driving up gold prices. With Congress failing to pass a new appropriations bill, the U.S. government faces the potential for another shutdown. Looking ahead, analysts say they expect the U.S. government will not be able to make significant cuts to spending.

Analysts stated, "While the outcome remains inherently uncertain, our baseline assumption is that the Congressional Budget Office's forecast for the budget deficit will worsen relative to current law; tariff revenues, savings achieved by the Department of Government Efficiency (DOGE), and potential cuts to Medicaid will not be enough to fully offset the extension of the Tax Cuts and Jobs Act (TCJA, which could increase the deficit by 1.5 percentage points). In this challenging fiscal context, along with the fiscal backdrop of many developed economies, gold prices may remain at historically high levels."

Garvey's team also expects that if the Trump administration pressures the Federal Reserve to cut interest rates, thereby challenging the Fed's independence, the upward trend in gold will accelerate. The Fed recently shifted to a more neutral stance, stating that given the relatively healthy U.S. labor market and persistent inflation risks, it is not in a hurry to cut rates.

Despite gold approaching a significant milestone, Macquarie Bank pointed out that there is very little bubble in the market. They added that the investment demand for gold-backed ETFs has decreased by 20% compared to the historical peak in 2020, leaving ample room for market growth.

Macquarie commodity analysts believe that the downside risk for gold this year is minimal.

They stated, "Ultimately, changing this structurally supportive environment for gold may require a shift in the market's expected path for the U.S. deficit or positive reasons for long-term real yields to rise. For example, stronger trend productivity growth, which would increase trend GDP growth. These are reasonable scenarios, but not our current baseline assumption."

While gold is expected to continue outperforming in the precious metals sector, Macquarie is also optimistic about silver, raising its silver forecast from the previous $31 per ounce to $33.50 per ounce in the third quarter.

However, Macquarie still predicts that the gold-silver ratio will remain at a high level close to 92 points.

This Australian bank expects that the fundamentals for silver, namely the supply-demand imbalance, will continue to support its price this year and into 2026.

Analysts stated, "The scale of the silver deficit remains too large to be compensated by supply growth. Expected at 118.9 million ounces in 2024 and 157 million ounces in 2025, the potential physical market is expected to remain tight within our current forecast window. Given our projected surpluses of 55 million ounces in 2025 and 75 million ounces in 2026, only moderate demand for coins and silver bars is needed to keep silver prices healthy before ETF inflows recover. This indicates that there is still room for a significant rise in silver prices driven by stronger financial buying, including through derivative positions."

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