In 2023, gold experienced a significant turnaround, gaining more than 15% in the international market after two years of underperformance. This surge in price was driven by a number of factors, including geopolitical tensions, US Federal Reserve policy decisions, a volatile US currency, and a pessimistic global growth outlook. These combined to reaffirm gold’s status as a safe-haven asset.
The Russia-Ukraine war and events in West Asia due to the Israel-Palestine conflict added to global market risk in 2023. The decade-long clash between Israel and Palestine culminated in war on October 7, 2023, further heightening geopolitical tensions and prompting investors to turn to gold as a safe investment.
Since the start of the Israel-Palestine war, gold prices in overseas markets have risen by over 12%, as investors become more risk-averse in the face of increasing geopolitical tensions. The US Federal Reserve’s policies also influenced the demand for gold, with the Fed raising interest rates four times in 2023, making the US dollar and bonds more attractive to investors and leading to a correction in global gold prices during September-October.
However, the Fed’s subsequent decision to keep rates steady and the forecast of lower rates reignited demand for gold, pushing prices to new record highs in various markets. Additionally, increased buying by central banks, including a net purchase of 800 tons of gold in the first three quarters of 2023, supported gold prices.
Looking ahead, while domestic gold prices may face a correction in the first quarter of 2024 due to being at near-record levels, a weak rupee and expectations of increased jewelry demand may support prices. In the international market, gold may trade in a tight range with minimal chances for major rallies or liquidation, with US policy decisions, firm equities, and the performance of US assets acting as potential downside obstacles. However, the likelihood of low-interest rates, geopolitical uncertainties, and central bank purchases may mitigate major liquidation.
The factors driving gold prices higher in 2023 are likely to continue to impact the market in 2024, making the outlook for gold positive overall. As central banks continue to purchase gold and global tensions persist, gold may retain its safe-haven status and see continued demand. Additionally, as economic uncertainties remain, investors are likely to continue seeking refuge in assets like gold.
