Trump’s Policies May Push Prices Higher

The president-elect’s proposed policies, including higher taxes on imports, mass deportations, and increased government borrowing, could contribute to inflation, according to the investment bank.

Federal Reserve Independence at Risk

Goldman Sachs analysts also warned that Trump might undermine the Federal Reserve’s independence, making it harder for the central bank to control inflation.

Commodities as a Hedge Against Uncertainty

In a client note, Goldman Sachs advised investors to consider gold and oil as hedges against the potential risks posed by Trump’s uncertain policies.

The analysts noted: “The wide range of possible US policy changes in 2025 strengthens the role of commodities in diversifying portfolios.”

They added, “Long positions in gold and oil could serve as critical hedges against inflation and geopolitical risks, including tariff increases (gold), oil supply disruptions (oil and possibly gold), and debt concerns (gold).”

Gold Price Expected to Surge

Goldman Sachs forecasts gold will rise to $3,000 (£2,376) per troy ounce by the end of next year, surpassing the previous record of nearly $2,800 in October.

Despite a slight drop since the election, Goldman Sachs sees the decline to below $2,600 as an “attractive entry point” for investors.

Central Bank Demand Drives Gold Prices

Gold’s price increase has been partly driven by major purchases by central banks, especially since Russia’s invasion of Ukraine in 2022.

“Central bank demand has surged fivefold since the freezing of Russia’s central bank assets, due to concerns over financial sanctions and US debt sustainability,” the bank noted.

Trump’s Borrowing Plans Add to Bond Risks

Trump’s plans for increased borrowing, expected to add $7.5 trillion to the national debt by 2035, create additional risks for US government bonds, prompting investors to seek alternative safe assets.

Goldman Sachs noted: “Higher tariffs, deportations, and reduced oil supply from Iran are key inflation risks under a second Trump administration, which could weigh on equity and, in some cases, bond returns.”

On the demand side, “larger tax cuts, higher defense spending, and stronger attempts to influence Fed policy could also impact bond returns.”

Fed Interference Could Fuel Inflation Fears

Interfering with the Federal Reserve could raise concerns about prolonged inflation, pushing more investors into gold.

Trump previously replaced Janet Yellen with Jerome Powell as Fed chair. However, Powell later became a target of Trump’s criticism, with reports suggesting the president sought to replace him for more control over monetary policy.

After a 2019 rate hike, Trump said Powell had “no guts, no sense, no vision.”

Gold as a Hedge Against Erosion of Asset Value

This month, Powell stated that he believed he couldn’t be fired before his term ends in 2026 due to legal protections.

Goldman Sachs concluded: “Loss of central bank credibility (e.g., political interference at the Fed) could fuel inflation and erode the value of nominal assets, making real commodities, especially gold, vital for wealth preservation.”