Gold (XAU/USD) prices recently dropped below $2,000 for the first time since December 2023. The dip was influenced by hotter-than-expected US inflation, which has reduced expectations for a rate cut in the first half of 2024. MUFG Bank economists have analyzed the outlook for the yellow metal and believe that despite these challenges, gold’s resiliency remains intact.
The economists noted that while elevated yields and the recent FOMC meeting have contributed to a bearish outlook for noninterest-bearing bullion, they are still bullish on gold for 2024. They point to robust EM central bank purchases on reserve diversification and gold’s role as a geopolitical hedge of last resort as the primary factors supporting their bullish view.
Despite acknowledging downside risks to their $2,350 year-end forecast for gold prices, the economists continue to recommend leaning long on gold and view any sell-off as a buying opportunity. They believe that in an environment with elevated risk dimensions (geopolitics, recession repricing), gold’s favorable hedging qualities make it a valuable asset to hold.
Insightful additional information could include discussing the impact of geopolitical tensions and the potential for a global recession on gold prices. For example, if tensions between major nations continue to escalate or if there are signs of a significant economic downturn, these factors could drive investors to seek safe-haven assets like gold, further supporting its price. Additionally, the increased demand for gold in emerging markets, particularly in economies looking to diversify their reserves, could also contribute to the continued bullish outlook for gold.
