Gold set to get a boost as President-elect Trump's spending plans fuel inflation

Where are gold prices going? Expert: Look to the Fed

President-elect Donald Trump's plan to spend on big projects could send inflation up, which in turn would help gold, a fund manager said Tuesday.

In his victory speech, Trump proposed a "$1 trillion over a 10-year period" infrastructure plan, which has already boosted the prices of metals in the last week.

While the market was still speculating on what would lies ahead when he takes office, the general consensus is that fiscal spending is far easier to achieve than other reforms he has proposed, said Alex Merk, president and CIO of Merk Investments. That should underpin the appeal of gold as an inflation hedge.

"Ultimately, what is going to matter is if inflation is going to tick up more than rates are going to pick upmeaning is the Fed going to be behind the curve or not? If the Fed is behind the curve, then gold should do just fine; if however the Fed is able to get in front of this or if inflation is not going to materialize much but the yield curve remains steep and real rates rise, then yes, the gold selling is over," he added.

Gold prices spiked nearly 5 percent last week on risk aversion as results the presidential results rolled in but have since sinked to a six-month low on Monday as the dollar strengthened. The spot gold price was around $1,224 an ounce Tuesday in Asia as the market weighed Trump's economic plans.

Waring Abbott | Getty Images

The uncertain environment will likely keep gold afloat, said Merk.

While gold has a historically low correlation to bond yields, that correlation is now "very high", a positive for the precious metal, he said.

Since last week's election, the benchmark 10-year Treasury has gone from a yield of 1.80 to 2.2 percent. The 30-year bond yield crossed the psychological 3 percent level Monday. Bond yields move inversely to bond prices.

Merk expected the correlation to fizzle out but there will be a short-covering rally in gold is expected in the short-term. In the medium term, a continuation of the trend would depend on moves in the inflation rate, real interest rates and yield curves, he added.

While real rates haven't moved up, the anticipation is that the Fed would get tougher and hike rates with more fiscal spending spurring inflation.

But "at end of day, the Fed is going to be behind the curve and gold will be just fine," Merk said.

Follow CNBC International on Twitter and Facebook.