Gold price forecasts see yellow metal well-supported in 2024

Gold price forecasts sees yellow metal supported by geopolitical risks and rate cuts in 2024

Despite the challenges posed by high U.S. Treasury yields and a strong dollar, the price of gold showed resilience throughout last year. The commodity rose over 20% to a record high of $2,135 in 2023.

The surge in U.S. bond yields due to the Federal Reserve tightening monetary policy, coupled with the sustained strength of the greenback, has historically exerted downward pressure on gold. However, the historical negative correlation between gold and these asset classes began to weaken in early 2023.

Gold withstood pressures well, with price levels attempting to — unsuccessfully — hold above $2,000 per ounce amid the collapse of several regional U.S. banks, which sent jitters through the global financial system.

Gold’s solid performance as a non-yielding asset, considering the traditionally strong headwinds, sets the stage for potential new all-time highs in 2024 as the case for monetary policy easing gains traction.

There are indications that interest rates may have reached their peak, with the possibility that the July rate hike to 5.25-5.50% by the Fed marks the end of this cycle. Interest rate futures markets are factoring in expectations of up to a 90-basis-point (bps) cut in the U.S. and 80 bps in the Eurozone for 2024. Some major banks, such as UBS, have forecast as much as 275 bps of interest rate cuts in 2024, while others, like Goldman Sachs, maintain a projection of 50 bps.

As rates are anticipated to decline, U.S. yields are expected to follow suit, which could positively impact the price of gold. While central bankers appear to be leaning towards “higher-for-longer" policies, economic conditions in the first half of 2024 may force earlier rate cuts, potentially providing additional momentum for gold to reach new highs.

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Central bank gold: Demand seen to extend into 2024

The demand for the yellow metal from central banks also shows no signs of abating. Buying trends in emerging markets appear to be firmly established, and robust central bank demand for gold may persist into 2024.

Central bank demand this year has kept pace with the record levels seen in 2022, with the possibility of surpassing the 1,136 tonnes added to reserves last year. The People's Bank of China has been steadily increasing its gold reserves as part of a strategic shift away from holding dollars, adding 181 tonnes.

Gold price forecast for 2024: Heraeus sees gold within $1,880 and $2,250 range

In their Precious Forecast 2024, analysts at German technology firm Heraeus projected the commodity to trade within the $1,880 and $2,250 range, with interest rates being a key driver of the gold price:

“Interest rates will be a primary driver of the gold price next year. The idea that there will not be a recession in the US has gained ground this year. However, the signal from the inverted US Treasury yield curve has been accurate in predicting recessions previously and there is no reason to suspect it will be wrong this time. When the Fed initiates cuts to interest rates, the gold price is expected to move higher as the dollar weakens and yields fall. Gold is forecast to trade between $1,880/oz and $2,250/oz, although, if the euro strengthens as anticipated, the gains will be greater in dollar terms than in euros”.

Record gold prices: ANZ and MUFG highly bullish on the yellow metal

Commodity strategists at Australia’s ANZ Bank had a more bullish view, citing three drivers — interest rate reductions, geopolitical risks, and central bank buying, as potential support factors for the yellow metal throughout the year:

“Going into 2024, we expect the gold price to average above $2,000.

While we hold a positive stance for gold, the latest price rally looks overdone. Steady rates till H1 2024 and falling inflation will see real rates rising by 50-100 bps, which will be negative for gold investments. Therefore, we believe the upside to be capped for gold in the near term.

Our long-term bullish view for gold hinges on three drivers: First, the Fed will start cutting interest rates, which will reduce the opportunity cost of non-yielding gold. Second, economic, political and geopolitical risks are expected to remain heightened in 2024. The upcoming US elections will increase policy uncertainty, while prospects of slowing economic growth might encourage investors to diversify their portfolios by adding gold. Third, central bank purchases sustain even after two years of strong buying. We estimate central bank buying to be in the range of 800-850t, but there could be an upside risk to this number”.

According to a gold price forecast issued by MUFG Bank on December 21, the commodity may hit record levels in 2024, driven by the same factors cited by ANZ — Fed cuts, central bank demand for bullion, and geopolitical risks. Gold is MUFG’s “most bullish call” in the coming year, according to the forecast:

“Geopolitical tensions have become a key driver for the precious metals complex following developments in the Middle East. The Red Sea has become a breeding ground of uncertainty, and this seems to leave gold in the driver’s seat. Renewed U.S. Dollar weakness has also assisted gold old in holding the high ground and continuing its advance.

Federal Reserve policymakers have this week struck a dovish tone with most speaking about the amount of rate cuts needed in 2024 with very little pushback besides the odd comment about monitoring data moving forward. The significant revision to the Fed’s policy path in last week’s dovish pivot reinforces our U.S. rates strategist call for rate cuts to commence early in 2024.

A friendlier Fed and falling U.S. dollar strength should act to remove fundamental hurdles from gold’s upside path. Indeed, gold is our most bullish call and is to hit record levels in 2024 on a trifecta of Fed cuts, supportive central bank demand and bullion’s role as the geopolitical hedge of last resort”.

When considering gold and other commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.