Gold prices hit a new record at the start of the week, with spot prices reaching US$2,100 per ounce as the global demand for bullion continues to soar. In New York, on Sunday evening, spot gold momentarily exceeded US$2,100 per ounce, marking a historic peak, before declining ~2% on Monday to about US$2,028 per ounce. Concurrently, gold futures hit an intraday record of US$2,152.30, but eventually settled 2.27% down at US$2,042 per ounce.
Analysts predict that gold prices are likely to reach new highs next year and could persistently stay above the US$2,000 mark. This outlook is attributed to geopolitical uncertainty, expectations of a weaker U.S. dollar, and potential interest rate reductions. The Israel-Hamas conflict and the anticipation of lower interest rates have contributed to a two-month consecutive rise in gold prices, with the metal being sought after as a safe haven asset during periods of economic and geopolitical instability.
Central banks to increase gold reserves
Heng Koon How, head of markets strategy, global economics and markets research at UOB, told CNBC that a projected decline in the U.S. dollar and interest rates are significant positive factors for gold, estimating that its price might reach up to US$2,200 per ounce by the end of 2024. Nicky Shiels, head of metals strategy at MKS PAMP, shares a similar bullish stance on gold's future, citing the current lower leverage in gold compared to 2011, which could drive prices through US$2,100 and towards US$2,200 per ounce.
Bart Melek, head of commodity strategies at TD Securities, anticipates gold prices to average around US$2,100 per ounce in the second quarter of 2024. He highlights strong central bank purchases as a primary factor in this price elevation. According to a World Gold Council survey, 24% of central banks plan to increase their gold reserves over the next year, indicating a growing aversion towards the U.S. dollar as a reserve asset.
Gold Price and U.S. Debt Since 1970 pic.twitter.com/bYy5G4YtYA— Barchart (@Barchart) December 1, 2023
The possibility of a policy shift by the Federal Reserve in 2024 could further influence gold prices. Lower interest rates typically weaken the dollar, making gold more affordable for international buyers and thus escalating demand. The Fed initiated a series of rate increases in March 2022 in response to high inflation, which initially dampened gold's attractiveness. However, Fed Governor Christopher Waller's recent comments about a potential easing of policy if inflation data improves have led analysts to predict a spike in gold prices.
BMI, a research unit of Fitch Solutions, forecasts that the primary factors driving gold's buoyancy in 2024 will be U.S. Fed interest rate cuts, a weaker U.S. dollar and heightened geopolitical tensions.