We have raised our 12-month gold price target to US$3,100/ounce from US$2,900/ounce previously, as the risk of higher stagflation could provide a tailwind to the gold outlook. Concerns over US fiscal sustainability and geopolitical tensions could also drive more central banks to buy gold.

Vasu Menon
Managing Director
Global Wealth Management
OCBC Bank

Oil

After rising due to Biden’s new sanctions on Russia recently, Brent has retreated below US$80/barrel following calls by President Donald Trump for higher supply. Opening federal lands for drilling will be welcomed by the oil industry. However, financial considerations are likely to remain the key driver of oil production, particularly in the US oil shale industry. The downside for oil prices, on the other hand, is capped by high OPEC+ compliance, refilling of the strategic petroleum reserve (SPR) and the possibility of new/stricter enforcement of existing US sanctions on Iranian oil. OPEC+ plans to revive supplies by 120,000 barrel per day every month from April, bringing back a total of 2.1 million barrel per day by late 2026. However, the group has already delayed the restart three times amid fears it would create a surplus and push oil prices lower. We continue to see oil prices as rangebound and maintain our one-year forecast for Brent at US$75/barrel.

The US import tariffs on Canada (which was delayed for 30 days until 4 March at the time of writing) – means that the price of West Canadian Select (WCS) would need to adjust and the discount of WCS to the benchmark WTI would have to widen. At a macro level, the tariff impact and potential retaliatory tariffs on global economic growth and inflation are likely to result in stagflation. Industrial commodities like oil do not do well when there is stagflation. An escalation of the trade war is therefore a downside risk for oil prices.

Precious metals

Our view that gold prices could rise even with a strong US Dollar (USD) in 2025 remains on track. Gold continues to defy the negative pull during bouts of USD strength and higher real rates, extending a theme that has increasingly become evident in the last few years.

Trump’s shift towards a more disruptive path for trade policy could heighten stagflation risk (i.e. negative growth shock and positive inflation shock). Gold tends to do well when there is stagflation. We raised our 12-month gold price target to US$3,100/ounce from US$2,900/ounce previously, as higher stagflation risk could provide a further tailwind to the gold outlook. Concerns over US fiscal sustainability and geopolitical tensions, not helped by the tariff threats, could also drive more central banks to buy gold.

There is also growing investor interest in the exchange of futures for physical gold (EFP), which could reflect the shifting assessment with regards to tariff risk. An EFP enables traders to switch precious metals futures positions to physical commodities. The potential imposition of tariffs by the Trump administration on gold could lead to disruptions in the gold supply chain and impact the availability and cost of physical gold. As a result, market participants may have concerns about the ability to fulfil EFP transactions, leading to a widening in spread between gold spot prices in London and equivalent futures in New York.

Currency

The US Dollar (USD) closed flat in January, snapping three consecutive months of gains. The unwinding of Trump trades (i.e. USD longs) after there were no immediate tariffs following Trump’s inauguration was the main trigger. That said, the USD started the month of February on a much firmer footing in reaction to Trump’s tariff announcement on Canada, Mexico and China. He also confirmed that tariffs will “definitely happen” with the European Union. Tariff developments remain fluid. As such, we should continue to see more two-way trades dominate. An intensification of the trade war would result in greater demand for the safe-haven USD, while a trade truce should see the USD’s strength fade. For now, the risk for the USD is skewed to the upside on fears of a trade war escalation. Tariffs may undermine global trade, growth, sentiments and pose risks to US inflation. This may derail its disinflation journey and imply fewer rate cuts by the Federal Reserve (Fed) in 2025/26. Any further hawkish re-pricing alongside risk-off sentiments will keep the USD supported in the short term.

The Euro’s (EUR’s) decline moderated in January after Trump did not immediately announce universal tariffs after his inauguration. However, news reports said that US Treasury Secretary Scott Bessent favours universal tariffs, starting at 2.5%, while Trump said he wants tariffs “much bigger” than 2.5%. Lately, Trump also confirmed there will be tariffs on the European Union. In the short term, the EUR may face downward pressure on a few factors: (i) stagnation in the Euro-area; (ii) risk that the ECB may need to cut its benchmark rate to below its neutral rate to support growth; (iii) a rise in energy costs (as cold weather depletes reserves and given reduced Russian supplies) adding more pain to industrials and households; (iv) tariffs hitting Europe’s exports when growth is already stagnating. But at the same time, EUR shorts may be stretched, and many EUR negatives are already in the price, including a dovish ECB, growth concerns, etc. In the event that there are positive surprises such as universal tariffs being delayed further, then EUR shorts may further unwind (providing relief for the EUR).

The USD-Japanese Yen (USDJPY) traded lower for the month of January. The USDJPY’s decline was due to the pullback in US Treasury (UST) yields, while the BOJ hiked rates and hinted at continued policy normalisation. Japanese economic data continues to support BOJ policy normalisation. Wage growth pressure remains intact, alongside broadening services inflation. Tokyo’s core CPI, PPI and wages rose, while the labour market report also pointed to upward wage pressure with the jobless rate easing, while trade unions are calling for another 5-6% wage increase at the shunto wage negotiations. The divergence in Fed-BOJ policies should bring about further narrowing of UST-JGB yield differentials and this should underpin the broader direction of travel for USDJPY to the downside. Elsewhere, an escalation in the tariff wars may also support safe-haven demand (less negative for JPY in relative terms). That said, any slowdown in the pace of policy normalisation – be it the Fed or the BOJ – would mean that USDJPY’s direction of travel may be bumpy or face intermittent upward pressure.

The USD-Singapore Dollar (USDSGD) closed lower for the month of January, tracking the broad pullback in the USD and UST yields. At its last Monetary Policy Statement on 24 January, the MAS reduced slightly its policy slope. This means the rate of appreciation for the SGD versus its trading partners is reduced. However, the overall stance is still a modest and gradual appreciation path. There was little reaction to Singapore Dollar Nominal Effective Exchange Rate (S$NEER) and the SGD after the release of the latest MPS, as expectations were largely priced in. Going forward, it is worth paying attention to core CPI in the coming months to get a sense on whether the MAS easing is one-off or if it may ease further. Historically, the positive correlation between the change in S$NEER and MAS’s core inflation shows that the strength of the SGD can ease when core inflation eases materially. Expectations for the MAS to ease can imply that the SGD strength seen in the past 2-3 years will continue to ease, especially alongside tariff concerns and weak sentiments. But if the policy band doesn’t revert to neutral, the SGD could still retain some degree of relative resilience, selectively against its trading partners.