Gold prices have rocketed to another record high this week after a strong 2023, and geopolitical tensions and continued central bank purchasing are expected to support demand for the precious metal in the upcoming year, said the World Gold Council. The yellow metal surged past the $2,100 per ounce mark this week before retracting slightly. Despite this retraction, spot prices hovered around $2,030 per ounce early on Friday.
The World Gold Council published its Gold Outlook 2024 report on Thursday, suggesting that many economists are expecting a “soft landing” in the U.S. This refers to a situation where the Federal Reserve brings inflation back to target levels without causing a recession. Historically, such soft landing environments have not been ideal for gold, resulting in flat to slightly negative average returns. However, the World Gold Council noted that with continued central bank purchasing and heightened geopolitical tensions in a key election year for many countries, gold may find additional support in the coming year.
In particular, the collapse of Silicon Valley Bank and the Hamas attack on Israel added 3% to 6% to gold’s price in 2023, according to the WGC. In the light of major elections taking place globally, the need for portfolio hedges is predicted to be higher.
The World Gold Council’s chief market strategist, John Reade, anticipates that gold prices will likely remain range-bound but volatile in 2024. The trajectory of Fed policy will likely guide price movements until the first interest rate cut materializes. While rate cuts are generally favorable for gold, Reade cited that a combination of ongoing inflation and lower-than-expected growth could potentially dampen gold consumer demand.
Additionally, central bank buying is expected to continue being a strong support for gold prices in 2024. The World Gold Council estimated that central bank demand added 10% or more to gold’s performance in 2023 and suggested that above-trend buying should still provide an extra boost to gold prices in the upcoming year.
Insight: Geopolitical tensions and changes in monetary policy can have a significant impact on gold prices, which have surged in 2023 and are expected to be sustained in 2024, despite potential headwinds. Central bank buying is set to remain a major factor in supporting gold prices, offering insights into the potential market outlook for the precious metal. Geo-political tensions and economic uncertainty have been the primary drivers of the recent increase in gold prices.
