This is an excerpt from our full Gold 2024 Outlook report, one of nine detailed reports about what to expect in the coming year. Click the banner at the bottom to see the full report.
Following two years of consolidative price action post-Covid, gold hit two new record highs in 2023: once in May, and again in December, as it attempted to break away from the key $2000 resistance level where it had previously sold off on multiple occasions. At the time of writing in mid-December, it was trading above this level after the Federal Reserve projected three rate cuts in 2024. With a favourable macro backdrop and technical indications pointing higher, I expect to see new records in gold prices in 2024.
What factors have been driving gold prices in recent years?
The cost of living increased sharply across the world in the past few years, leading to sharp tightening of interest rates. Fiat currencies lost significant chunks of their values between 2021 and 2023. Yet, gold was initially unable to rise, following its sharp gains in the previous few years. It was held back by rising bond yields as a result of high interest rates. Yields on 10-year bonds rose from around zero to around 5%, increasing the opportunity cost of holding zero-yielding assets like gold and silver. This offset the impact of stronger physical gold demand for
inflation hedging purposes through much of 2021 and 2022. But things started to change.
The global disinflation process slowly started from around the middle of 2022, which always meant that central banks would ease off the gas in terms of rate hikes. It wasn’t until around the middle of 2023 when many central banks, including the Fed, reached peak interest rates. Still, rates were seen remaining elevated for a long time, which was among the reasons why gold couldn’t break away cleanly in May, when it briefly peaked above the previous record that was set in 2020. That led to a sharp drop from around $2081 to the low of $1810 in October.
However, around the start of Q4, it started to become more apparent that the peak for inflation and interest rates had passed. Central banks’ tone started to change accordingly, from being uber hawkish to a little less hawkish, and eventually a bit dovish towards the end of the year. Inflationary pressures continued to wane across the world. Investors started to price in rate cuts in as early as the end of the first quarter of 2024. This gave gold another boost, as it rose about 18% from its October low to the current record high of $2146 set in early December, before easing back down a little.
In other words, gold was supported in 2023 by both inflation hedging purposes and expectations of interest rate cuts, among other factors. These factors will continue to influence gold in early parts of 2024. We therefore foresee a strong year for the metal in 2024. Let’s discuss reasons why we think that is going to be the case, and what are the major caveats in our bullish gold 2024 forecast.
Gold outlook 2024: Central bank rate cuts or expectations thereof
As we head to a new year, inflationary pressures are likely to ease further across the world, leading to the start of the great rate-cutting cycle. The likes of the ECB, BoE and Fed are all expected to start the process from as early as the end of Q1, although more likely a little later in the year given the not-so-dovish rate holds by the former two central banks in December.
The Fed has projected three rate cuts in 2024. The actual timing and extent of the rate cuts will depend on incoming data. But as we saw how much of a lift the price of gold obtained from expectations of rate cuts in 2023, we could well see significant gains in 2024 when central banks actually start loosening their polices and yields move further lower. There’s undoubtedly a lot of pent-up demand for gold given how hot inflation has been in recent years. Fiat currencies have lost significant chunks of their values. Gold, which some see as a true store of value,
should find support on any substantial short-term weakness. The bulk of the buying could happen even before rates are actually trimmed, as markets tend to price future developments ahead of time. I think that the start of the year could be a positive period, especially given the bullish momentum from late 2023.
How will the US dollar impact gold in 2024? What about physical demand? What are the key technical levels to watch? See our full guide for more analysis on what to expect in the coming year and beyond!
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