Geopolitics, central banks might maintain gold demand scorching in 2024: World Gold Council

Gold prices hit another record high this week after a roaring 2023, and a mix of geopolitical tensions and continued central financial institution shopping for ought to see demand stay resilient subsequent 12 months, in accordance with the World Gold Council.

The yellow steel broke by $2,100 per ounce on Monday earlier than moderating barely, and spot costs had been hovering at round $2,030 per ounce early Friday.

In its Gold Outlook 2024 report revealed Thursday, the World Gold Council famous that many economists now anticipate a “soft landing” within the U.S. — the Federal Reserve bringing inflation again to focus on with out triggering a recession — which might be optimistic for the worldwide economic system.

The trade physique (which represents gold mining firms) famous that traditionally, tender touchdown environments have “not been particularly attractive for gold, resulting in flat to slightly negative average returns.”

“That said, every cycle is different. This time around, heightened geopolitical tensions in a key election year for many major economies, combined with continued central bank buying could provide additional support for gold,” the WGC added.

Its strategists additionally famous that the probability of a tender touchdown is “by no means certain,” whereas a worldwide recession remains to be not off the desk.

“This should encourage many investors to hold effective hedges, such as gold, in their portfolios,” the WGC added.

The 2 most important occasions for gold demand in 2023 had been the collapse of Silicon Valley Bank and the Hamas attack on Israel, the WGC stated, estimating that geopolitical occasions added between 3% and 6% to gold’s value over the 12 months.

“And in a year with major elections taking place globally, including in the U.S., the EU, India, and Taiwan, investors’ need for portfolio hedges will likely be higher than normal,” the report stated, looking forward to 2024.

All eyes on the Fed

WGC Chief Market Strategist John Reade informed CNBC on Thursday that gold costs would probably stay range-bound however uneven subsequent 12 months. He expects them to react to particular person financial information factors that inform the probably trajectory of Fed coverage till the primary rate of interest reduce is within the bag.

Markets are at the moment pricing the primary 25-basis-point reduce to the Fed funds charge as early as March subsequent 12 months, in accordance with CME Group’s FedWatch device.

Nonetheless, though charge cuts are normally seen as excellent news for gold (as money returns fall and savers look elsewhere for high-yielding investments), Reade highlighted that two components might imply that “expected policy rate easing may be less sanguine for gold than it appears on the surface.”

Firstly, if inflation cools extra rapidly than charges — as it’s largely anticipated to do — then actual rates of interest stay elevated. And secondly, lower-than-expected progress might hit gold shopper demand.

“I’m not saying interest rates have to go back to 0 to reignite the demand, but that combination I think of the first cut in the States and cuts elsewhere in other important economies, will I think change a bit of the sentiment towards gold,” Reade stated.