Geopolitics, central banks could keep gold demand hot in 2024: World Gold Council

Gold costs hit one other file excessive 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 keeping with the World Gold Council.

The yellow metallic broke by $2,100 per ounce on Monday earlier than moderating barely, and spot costs have 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 “gentle touchdown” within the U.S. — the Federal Reserve bringing inflation again to focus on with out triggering a recession — which might be constructive for the worldwide economic system.

The business physique (which represents gold mining firms) famous that traditionally, gentle touchdown environments have “not been significantly engaging for gold, leading to flat to barely unfavourable common returns.”

“That mentioned, each cycle is totally different. This time round, heightened geopolitical tensions in a key election 12 months for a lot of main economies, mixed with continued central financial institution shopping for might present further help for gold,” the WGC added.

Its strategists additionally famous that the chance of a gentle touchdown is “not at all sure,” whereas a worldwide recession continues to be not off the desk.

“This could encourage many buyers to carry efficient hedges, corresponding to gold, of their portfolios,” the WGC added.

The 2 most important occasions for gold demand in 2023 have been the collapse of Silicon Valley Financial institution and the Hamas assault on Israel, the WGC mentioned, estimating that geopolitical occasions added between 3% and 6% to gold’s worth over the 12 months.

“And in a 12 months with main elections going down globally, together with within the U.S., the EU, India, and Taiwan, buyers’ want for portfolio hedges will doubtless be greater than regular,” the report mentioned, waiting for 2024.

All eyes on the Fed

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

Markets are at present pricing the primary 25-basis-point minimize to the Fed funds price as early as March subsequent 12 months, in keeping with CME Group’s FedWatch instrument.

Nonetheless, though price cuts are often seen as excellent news for gold (as money returns fall and savers look elsewhere for high-yielding investments), Reade highlighted that two elements might imply that “anticipated coverage price easing could also be much less sanguine for gold than it seems on the floor.”

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 development might hit gold client demand.

“I am not saying rates of interest have to return to 0 to reignite the demand, however that mixture I consider the primary minimize within the States and cuts elsewhere in different essential economies, will I believe change a little bit of the sentiment in the direction of gold,” Reade mentioned.

One different supporting issue for the yellow metallic trying forward is additional central-bank shopping for, in keeping with the World Gold Council.

Central banks have been a serious supply of demand within the international gold market during the last couple of years and 2023 is more likely to be a file 12 months. The WGC expects this to proceed in 2024.

Reade mentioned the group was stunned by the numerous improve in central financial institution purchases in 2022 and that the tempo of shopping for continued this 12 months.

In its report, the WGC estimated that central financial institution demand added 10% or extra to gold’s efficiency in 2023, and famous that even when 2024 doesn’t attain the identical heights, above-trend shopping for ought to nonetheless provide an additional enhance to gold costs.

“Our expectations are that central financial institution purchases will proceed subsequent 12 months on a web foundation, and that is just about the case for the reason that international monetary disaster,” Reade mentioned.

“My very own expectation is that central banks are very a lot going to be once more, the form of distinguished story within the gold market in 2024, however I believe that it could be optimistic of us to say that it should be one other file 12 months or a record-matching 12 months.”