According to the World Gold Council, gold prices rose above $2,100 to hit a new record last week, and a combination of geopolitical tensions and continued central bank buying should keep demand buoyant next year.
The yellow metal topped $2,100 an ounce on Monday, before pulling back slightly, with spot prices hitting $2,030 an ounce early Friday.
Gold Projections of the Supreme Council
In its Gold Outlook 2024 report released on Thursday, it noted that many economists now expect a “soft landing” in the U.S. — with the central bank targeting inflation without triggering a recession — that would be positive for the economy. Universal.
The industry body (representing gold mining companies) noted that historically soft landing environments “have not been particularly attractive for gold, resulting in flat or slightly negative average returns.”
“However, every cycle is different. This time, rising geopolitical tensions in a key election year for many major economies, coupled with continued central bank purchases, could provide additional support for gold,” the World Gold Council added.
Strategists noted that the possibility of a soft landing was “uncertain,” while a global recession was not ruled out.
“This will encourage many investors to keep effective hedges like gold in their investment portfolios,” the World Gold Council added.
The reason for the rise in gold prices
The World Gold Council said the two most significant events contributing to increased demand for gold in 2023 were the collapse of Silicon Valley banks and the Hamas attack on Israel, estimating that geopolitical events added 3% to 6% to gold prices. during the year.
“In a year with major elections around the world, including in the US, European Union, India and Taiwan, investors’ needs for portfolio hedging will be higher than usual,” the report said. 2024.
Gold Price Predictions in 2024
John Reed, chief strategist at the World Gold Council, said gold prices will remain flat next year. They are expected to respond to individual economic data that determine the likely path of central bank policy until the first interest rate cut takes effect.
However, while interest rate cuts are generally seen as good news for gold (as cash yields fall and savers seek higher-yielding investments), Reid noted that “anticipated easing of interest rates could be positive for gold.” ” “Compared to how the situation appears at first glance.”
First, if inflation falls faster than interest rates—as is generally expected—real interest rates will be higher. Second, weaker-than-expected growth could hurt consumer demand for gold.
“I’m not saying interest rates need to go back to zero to revive demand, but the combination of the first cut in the US and cuts in other major economies will change sentiment on gold somewhat,” Reid said.
Also, central banks have been a major source of demand in the global gold market over the past two years, and 2023 is expected to be a record year. The World Gold Council expects this trend to continue into 2024.
Reed said the agency was surprised by the Fed’s significant increase in purchases in 2022, and that the pace of purchases continued this year.
The World Gold Council estimated in its report that central bank demand has added 10% or more to gold’s performance in 2023, and even if 2024 does not reach the same heights, purchases are expected to continue, providing an additional boost to gold prices. .
“We expect central bank purchases to continue on a net basis next year, which has largely been the case since the global financial crisis,” Reid said.
“I expect central banks to play a major role in the gold market again in 2024, but I think it would be too optimistic to say it will be another record or record-breaking year.
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