Gold has reached record highs this year, propelled by geopolitical tensions and economic uncertainties. ING anticipates continued strength in gold prices through 2024, underpinned by safe-haven demand and the evolving outlook for US interest rates.
According to the Netherlands-based bank's research, the recent surge in gold prices, particularly in the last quarter of 2023, can be attributed to an increased appetite for safe-haven assets amid growing uncertainties. The outbreak of the Israel-Hamas conflict in October pushed gold close to its previous record of $2,075/oz set in 2020. Despite the easing of concerns over a broader Middle East conflict, gold has maintained its strength, supported by a softer US dollar and favorable US Treasury yields. This upward trajectory culminated in a new record high for gold prices in early December.
The key determinant for gold's outlook, according to ING, is the Federal Reserve's policy. The strength of the US dollar and central bank tightening have exerted downward pressure on gold throughout 2023. However, recent data indicating a cooling labor market and inflation, coupled with market expectations of a rate cut in the coming months, could shift this dynamic.
Other market participants share the same view.
“Once central banks stop tightening and start easing rates, which could be next year, gold will probably go higher,” says Bruce Liegel, a macro fund manager and author of the research newsletter Global Macro Playbook. “If we have a global recession, it will impact the amount of easing that the central banks will carry out. The more easing, the higher gold can go later next year and into 2025.”
ING's US economist anticipates rate cuts starting in May, totaling 150 basis points in 2024, and an additional 100 basis points in early 2025. This is expected to provide significant support for gold's upward movement.
The outlook for gold's trajectory hinges on the magnitude of the rate cut, contingent on whether there is a hard or soft landing in the economy.
“The future path of gold is probably higher, and it's going to be determined by the degree of the landing,” says Liegel, who writes a monthly global macro report. “If it’s a hard landing, it will go up a lot more because the central banks will need to ease more. A soft landing means that less easing is required.”
While gold demand trends present a mixed picture, ING foresees a resurgence of investor interest in 2024. Despite ongoing outflows from gold-backed ETFs, sentiment turned positive in October, reflected in net-long positioning. This suggests that there is still room for speculators to contribute to net-long positions in the coming year.
Central banks have also continued to be significant players in thegold market increasing their reserves by approximately 800 tonnes over the first three quarters of 2023. This record-setting pace is driven by concerns over geopolitical tensions and shifting strategies on currency reserves. Notable contributors to this surge include China, Poland, Turkey, and India. Central bank demand, along with sustained investor interest, positions gold favorably for continued strength.
ING notes that the continued buying trend from central banks, together with a weak US dollar on the back of US monetary easing, may set the stage for gold to reach new highs in 2024. The bank anticipates prices to average $2,031 per ounce in 2024, with a fourth-quarter average of $2,100 per ounce. Downside risks revolve around US monetary policy and a stronger dollar, while geopolitical instability remains an upside factor for gold markets in the coming year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
