Last year, gold had a strong 12 months that was marked by significant growth and record-setting prices. The yellow metal’s positive performance was down to various global economic and geopolitical factors.
Off the back of a strong year, Gold trading will be on the minds of many CFD traders heading into 2024, along with traditional investors. But will its strength continue into 2024?
The Context of Gold Leading Into 2024
Gold prices saw a 15% increase over the year, reaching an all-time high annual close of $2,078/oz. This peak in gold prices was also reflected across various currencies, setting a record high in USD, JPY, EUR, GBP, CAD, INR, and a few others. The all-time high came at the back end of the year, and it remains to be at a very similar price in 2024.
The rise in gold prices was partly attributed to elevated geopolitical risks and robust central bank demand, which caused uncertainty. Notably, central banks were estimated to have contributed between 10 and 15% to gold’s performance in 2023. Despite facing headwinds from a strong US dollar and rising interest rates – two areas that often hurt gold – gold’s performance remained resilient, outperforming several asset classes including U.S. bonds, the U.S. dollar, global treasuries, and general commodities.
The S&P 500, in comparison, it could not outperform, but that’s not always surprising given the high-growth (and high-risk) expectations of US equities. The S&P 500 returned over 24% in 2023, though gold did outperform the FTSE 100, which returned a lacklustre 2.4%.
The US dollar in 2023 was relatively weak at the beginning of the year, which contributed to the initial surge in gold prices. The US Federal Reserve’s interest rate hikes also played a crucial role in gold price movements throughout the year. These rate hikes, initiated in early 2022 to control high inflation, continued into 2023. However, gold prices still managed to find support through central bank purchases and geopolitical uncertainties, such as the ongoing Russia-Ukraine conflict and the initiation of the Israel-Palestine conflict.
2024 Analysis and Predictions For Gold
Predictions from Financial Institutions and Analysts
Various financial institutions and market strategists have made their predictions known regarding gold prices in 2024. For instance, Gareth Soloway of InTheMoneyStocks.com expects gold to reach $2,534/oz, citing inflation and potential recession as key drivers.
Bank of America predicts gold could finish 2024 at around $2,400/oz, especially if the Fed cuts interest rates earlier in the year. They also expect aluminium and copper to hit $3000 and $10,500 per ton respectively.
J.P. Morgan forecasts an average of $2,175 to $2,300 for the second half of 2024, with rate cuts by the Fed being a significant driver. They expect metals to be the shining light of the sector, and silver to perform similarly as strongly.
Impact of Monetary Policy and Political Climate
The Federal Reserve’s monetary policy and the political landscape are clearly core to the predictions of gold prices in 2024. JPMorgan considers gold a valuable diversifier, predicting an increase against the USD if the Fed does not increase interest rates. The bank also foresees gold prices catching up as the monetary base flattens, indicating an alignment of gold prices with broader monetary conditions.
We should be cautious about our expectations of gold to negatively correlate with the USD, though, seeing as 2023 wasn’t exactly a bad year for the dollar with all the rate hikes – and closing the year higher than it opened against the Euro. So, some apprehension should be awarded to rate cuts leading to a gold rally.
Political factors, such as the outcomes of various elections and geopolitical events, are of course another factor. Perhaps to the benefit of gold, 2024 is looking like a year of instability. Not only are there an increasing number of wars heading into the year, it will also be a year of many presidential/prime minister elections around the world, not least in the US and UK. Media outlets will be in a frenzy, and such panic can cause people to turn to gold.
Global Economic Factors and US Dollar Strength
As touched on, gold and the US dollar compete as global safe havens, and a stronger dollar could limit potential increases in gold prices. It’s somewhat assumed that the dollar will fall due to interest rate cuts, but will it? It is also not a given that we will see any rate cuts, or at least they may come towards the end of the year due to lingering inflation and strong growth, and some gold investors may lose confidence in the meantime.
Final Word
In 2023, gold demonstrated resilience and adaptability, thriving amidst global uncertainties and economic shifts. 2024 could be a very similar story, and most experts seem to think so too. But, the beginning of the year may not be as strong as the year as a whole, which is mostly dependent on the timing of the Fed’s rate cuts.
