Three factors why gold will glitter in 2024

Three factors — the US Fed’s likely move to cut interest rates, a weaker dollar and geopolitical tension — will likely keep gold prices elevated in 2024 with research agencies raising their price forecast for the precious metal.

JP Morgan has picked gold as the top pick among commodities this year and has forecast its prices touching $2,500 an ounce. US research agency BMI, a unit of Fitch Solutions, sees gold hovering in the range of $1,950-2,250 in the coming month. It has raised the average price of the yellow metal to $2,100 this year from $1,950 it forecast earlier.

“Gold is set to rise even further in the coming months of 2024, especially when the Fed actually starts to cut,” said Sabrin Chowdhury, Head of Commodities, BMI.

“For the second consecutive year, the only structural bullish call we hold is for gold and silver,” said JP Morgan in its outlook for the precious metal.

“…we are bullish towards gold prices in the coming months, strong downside risks are stemming from still strong US economic data, which could result in fewer rate cuts by the US Fed than we currently expect,” said BMI in its commentary.

10% rise YTD

However, ING Think, the economic and financial analysis wing of Dutch multinational financial services firm ING, said, “Whether this strength can be sustained is unclear, particularly since the Fed lowered its estimate for rate cuts next year from four to three, suggesting that rates could settle higher than originally expected.”

On Friday, gold futures, which zoomed to a record high of $2,222.49 an ounce, were quoted at $2,168. Spot gold ruled at $2,166.20. The yellow metal is set to end the week with gains, the fourth time in five weeks. The precious metal has gained 10 per cent since January.

In India, MCX June gold futures ruled at ₹66,782 per 10 gm. In Mumbai, gold for jewellery (22 carat) was quoted at ₹6,468 per gram.

Currently, prices have come off the record high as the dollar, which is mainly used for trading in the yellow metal, strengthened on hopes that major global banks could start cutting interest rates before the US Fed. On Thursday, the Swiss National Bank slashed its policy rate, while the Bank of England indicated an imminent rate cut.

Driven by investors

Chowdhury told businessline that Central bank purchases of gold have been one of many factors supporting gold prices in recent months.

“2022 saw the highest central bank gold purchase in history, and 2023 the second highest. In 2023, China topped the list of buyers, followed by Poland and then Singapore,” he said.

The BMI head of commodities said the rally to recent record highs have been driven mostly by investor expectations of the US Fed’s rate cuts. Lower bond yields naturally reduce the opportunity cost of holding gold, a non-yielding asset.

JP Morgan also cited geopolitical risks besides downside risks for the dollar and interest rates for the buoyancy in gold. It said key interest rate cuts are historically a favourable scenario for gold.

BMI said US Fed rate cuts hold the key to interest in gold, as lower bond yields would divert investment into the non-yielding yet haven asset. IT said per its Macro team expectations the first US Fed cut will come in June 2024 and that the funds rate will be lowered by 100 basis points to 4.50 per cent by year-end.

Inflation risk

“This will support gold prices, especially in H2 2024. All else equal, the bigger and more frequent the rate cuts, the higher gold prices would rally. However, risks to even this projection are clearly tilted in favour of a more hawkish outcome due to the strength of both incoming activity and inflation data,” BMI said.

JP Morgan said investor appetite in the physical gold market will be a major contributor to the gold rally this year. Money managers expect prices to rise.

BMI said inflation will continue to ease in 2024, indicating that gold demand as a hedge against inflation will slow as well.

While JP Morgan expects gold to rise further in 2025, BMI said in the longer term, gold prices will remain elevated compared to pre-Covid levels.