Gold prices are expected to keep rising significantly, influenced by various macroeconomic and political factors, according to Sprott Asset Management.
In a recent report by market strategist Paul Wong, inflation risks are cited as a key driver for gold prices, partly because the full effects of U.S. tariffs are yet to be felt.
“With tariffs in place, we anticipate an increase in goods costs, especially as post-duty inventories reach consumers. This inflationary pressure generally boosts gold demand as a hedge against currency devaluation,” Wong noted.
Moreover, the uncertainty surrounding U.S. interest rates adds more support for gold. The Federal Reserve, which is projected to begin cutting rates next January, faces strong pressure from President Donald Trump, potentially leading to more aggressive cuts. These anticipated rate reductions, combined with inflation pressures, typically result in lower real interest rates, creating an environment that historically favors gold, Wong explained.
Political instability also plays a role, as it has prompted investors to flock to gold since Trump’s presidential term began. His recent criticisms of the Fed have introduced additional institutional uncertainties and risks. According to Wong, gold often performs well in such tumultuous times.
Eroding the Dollar
The possible end of U.S. Central Bank independence could create a situation referred to by Sprott analysts as “decay trade.”
Wong emphasized that a weakening dollar is likely to spur inflation, increase debt, and dilute the true value of U.S. assets. The reliance on T-Bills for stability may undermine the dollar’s scarcity premium.
In this context, the dollar-centric global financial system may struggle to remain sustainable. With the dollar being viewed as a valuable asset, it forces the U.S. to operate with a persistent deficit, undermining its industrial foundation.
This situation may push the value storage function toward neutral reserve assets like gold, which has been reflected in the increased purchases of gold bullion by global central banks.
A Strong Technical Outlook
The Sprott report comes as gold prices approach a new record, hitting $3,674.27 per ounce. As of September 12th, profits for the year were up nearly 40%, marking the highest annual increase since 1979.
This previous high occurred in April amidst turbulent tariffs, after which precious metals seemed to stabilize. However, according to Wong, another upward movement may be on the horizon.
“Right now, equity positioning aligns with our views, and risks are building, reaching the cap, while gold diverges from the consolidated trends,” he remarked.
Wong highlighted that the key indicator, the 2S30S Treasury yield curve, continues to drop sharply. “The market is anticipating policy rate cuts, even as long-term inflation concerns and reliability issues regarding the Fed arise. Historically, long-term yields tend to fall when the Fed starts its rate reduction cycle, which could set off discussions about Yield Curve Control (YCC), an unorthodox monetary policy aimed at long-term rates,” he said.
“Overall, the steep yield curve indicates bullish signals for gold. While two-year yields decrease in light of expected policy drops, 30-year yields have increased due to ongoing inflation risks, rising term premiums, and a potential fiscal advantage,” he added.
If extreme steepness in the curve compels policymakers to adopt YCC and leads nominal yields below inflation, we could see the erosion of monetary assets, such as Treasury debt and U.S. dollars, in real terms.
