Gold To Post New Highs In 2024
(Kitco News) - Gold prices will continue to set new all-time highs in 2024 as they are boosted by a weakening U.S. dollar and Fed rate cuts, according to Ewa Manthey, Commodities Strategist at ING.
“Gold has rallied in the last quarter of the year as demand for safe-haven assets has increased and amid bets that the Federal Reserve will cut rates next year,” Manthey wrote in an article for the Dutch banking giant on Monday.
“Although concerns over a wider Middle East conflict have now eased, gold has held up well, gaining support from a softer US dollar and US Treasury yields on the US interest rate outlook, with prices reaching a new record high in early December,” she said. “We expect prices to remain above the $2,000 level next year as the global rush for gold continues.”
Source: Kitco News
Manthey said that even with the strong safe-haven bid, the U.S. Federal Reserve remains the largest single driver for gold prices.
“We believe Fed policy will remain key to the outlook for gold prices in the months ahead,” she said, noting that the strength of the dollar and historically high rates have weighed on gold throughout much of the year.
“The latest US data showed inflation and the labour market are cooling, with markets now pricing in a 50% chance of a rate cut in March and fully pricing in a cut in May,” she said. “Our US economist expects the starting point for Fed rate cuts to be in May and is forecasting 150bp of rate cuts next year in total, with a further 100bp in early 2025. This should support gold’s move higher.”
But not everything is supportive of gold prices, as some areas of gold demand are still lagging, notably ETFs, which continue to record outflows.
“Total holdings in bullion-backed ETFs have continued to decline this year despite rising spot prices,” Manthey wrote. “Although global gold ETF outflows continued in October, they were at a slower pace than in September. Year-to-date, global outflows totalled $13 billion, equivalent to a 225-tonne fall in holdings.”
She said that data from the World Gold Council (WGC) showed the lion’s share of these outflows came from European and North American funds, while investment demand in other parts of the world was stronger.
Source: Kitco News
“Looking into 2024, we believe we will see a resurgence of investor interest in the precious metal and a return to net inflows given higher gold prices as US interest rates fall,” Manthey said.
Other areas of the market have already shifted, however. “[N]et-long positioning, reflecting sentiment in the gold market, turned positive in the second half of October as spot prices surged amid the outbreak of the Israel-Hamas conflict,” she noted. “COMEX net-long positionings rose 137% month-on-month to 29 October, supported by the rise in geopolitical concerns.”
When compared to positioning in 2019 and 2020, she said that overall positioning in 2023 looks neutral. “This suggests that there is still plenty of room for speculators to add to their net long in 2024 and push gold prices even higher.”
Source: Kitco News
Central banks represent one of the strongest sectors on the demand side, with 2023 poised to set a new record.
“Central banks purchased around 800 tonnes of gold over the first three quarters of 2023, 14% ahead of the same period last year, according to data from the WGC,” she said. “This was a record amount bought for a nine-month period, as geopolitical concerns pushed central banks to increase their allocation towards safe assets.”
Manthey said that central bank demand enabled gold prices to weather the headwinds from surging bond yields and a strong U.S. dollar in 2023, and she believes these historically high purchase rates will continue in 2024.
“We expect central banks to remain buyers and to near or exceed last year’s purchases in 2023 due to geopolitical tensions and the economic climate,” she said. “This continued central bank buying amid stronger investment demand sets gold up to move higher through 2024.”
All of these factors contribute to ING’s view that gold prices will continue their upward trajectory as they set new all-time highs in 2024, with gold’s average price remaining above $2,000 per ounce throughout the year.
“We expect gold prices to hit fresh highs next year and to average $2,100/z in 4Q, with a 2024 average of $2,031/oz on the assumption that the Fed starts cutting rates in the second quarter of next year, the dollar weakens, safe-haven demand continues amid global economic uncertainty and central bank buying remains at high levels,” she wrote.
Source: Kitco News
Manthey sees U.S. monetary policy and potential USD strength as the main downside risks for gold next year, with geopolitics providing potential tailwinds for the precious metal. “The higher-for-longer narrative could see a stronger dollar for longer and weaker gold prices,” she said. “Meanwhile, geopolitical instability offers upside risks for the gold market in 2024.”
