Will gold prices hit another all-time high in 2024?

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Will gold prices hit another all-time high this year after a 13 per cent annual rise in 2023? With expected interest rate cuts and cooling inflation on the horizon, what is the gold price forecast for 2024 and beyond? It’s a million dollar question, and experts are not certain that the yellow metal will surpass an all-time high of $2,135.40 per ounce recorded on December 4, 2023.

Leading investment banks, research analysts and market experts are convinced that gold is expected to sustain its upward trend this year, but it is unlikely to set a new record before 2025.

In 2023, spot gold recorded its best performance since 2020, trading around $2,028 per ounce in early trading on January 29.

"Following on from a surprisingly robust performance in 2023 we see further price gains in 2024, driven by a trifecta of momentum chasing hedge funds, central banks continuing to buy physical gold at a firm pace, and not least renewed demand from ETF investors," according to Saxo Bank's Ole Hansen.

RATE CUTS, INFLATION

Gold prices surged in the last few months of 2023 after a powerful rally was sparked by central bank purchasing and mounting investor concern over the Israel–Hamas and Russia–Ukraine conflicts. A falling US dollar and expectations of Federal Reserve (Fed) rate cuts further boosted bullion prices.

After a hiking cycle that pushed the Fed funds rate to its highest in more than 22 years, policymakers on the Federal Open Market Committee (FOMC) have indicated at least three rate cuts in 2024, as inflation eases from the 40-year highs seen in mid-2022. With gold prices hovering around $2,000/oz, is another bullish run expected for the precious metal as rates begin to fall?

“Commodities are unlikely to benefit from core inflation in 2024. Inflation should fall to under three per cent, so that, along with properly timing the business cycle, are the two conditions needed to initiate long positions, making the outlook for the sector very tactical in 2024,” said Natasha Kaneva, Head of Global Commodities Strategy at J.P. Morgan.

“Across commodities, for the second consecutive year, the only structural bullish call we hold is for gold and silver,” he said.

Economic and geopolitical uncertainty tend to be positive drivers for gold, which is widely seen as a safe-haven asset due to its ability to remain a reliable store of value. It has low correlation with other asset classes, so can act as insurance during falling markets and times of geopolitical stress.

WEAK U.S. DOLLAR

A weaker US dollar and lower US interest rates also increase the appeal of non-yielding bullion. Anticipation has played a key role in sparking the rally in gold’s price, as it is influenced by market expectations of future Fed policy.

“Across all metals, we have the highest conviction on a bullish medium-term forecast for both gold and silver over the course of 2024 and into the first half of 2025, though timing an entry will continue to be critical,” said Gregory Shearer, Head of Base and Precious Metals Strategy at J.P. Morgan.

“At the moment, gold still appears quite rich relative to underlying rates and foreign exchange (FX) fundamentals, and still looks vulnerable to another modest retreat in the near-term, as Fed rate cut expectations are now running earlier than our forecasts,” Shearer added.

Gold prices will peak at $2,300/oz in 2025, according to J.P. Morgan Research estimates. This prediction assumes a Fed cutting cycle initially delivering 125 basis points (bp) of cuts over the second half of 2024, pushing gold prices to new nominal highs.

Gold price predictions are based on Fed official forecasts, which see core inflation moderating to 2.4 per cent in 2024 and 2.2 per cent in 2025, before returning to the two per cent target in 2026.

By the second quarter of 2024, J.P. Morgan economists forecast US growth will slow to 0.5 per cent quarter-on-quarter. This should prompt the Fed to start cutting rates in June, ultimately delivering 125bp of cuts in the latter half of the year to avoid a recession.

UBS forecasts a record of $2,150 by end-2024 if cuts materialize while the World Gold Council, in its 2024 outlook, projected that a drop of about 40 to 50 basis points in longer maturity yields, following 75-100 points of rate cuts, could translate into a four per cent gain for gold.

KEY TAKEAWAYS

• Gold prices touched an all-time high of $2,135.39/oz in December 2023, driven largely by a weak US dollar and expectations the Fed will begin lowering rates

• Fed interest rate cuts and falling US real yields will once again become the key drivers behind gold prices in 2024

• Gold prices are expected to dip in the near term before climbing to new highs later in the year, with a forecasted peak of $2,300/oz in 2025