This article was originally published on 11 December 2023.
Last Monday, despite reaching all-time highs in Asian markets, gold prices finished the week down more than 3.3%, closing at approximately $2,004 an ounce for the Comex front month and $2,020 for the continuous contract close. Some reports even indicated that gold touched $2,150 an ounce, with Comex reaching an all-time high of $2,130 an ounce on Monday.
Despite weaker US bond yields and the US dollar, which both saw gains on Friday after slightly better-than-expected November jobs data from the US, gold has been on a downward trend. As of Friday’s close, gold is up around 10% for the year, and with three weeks left until year-end, the full-year performance is expected to remain at that level.
Looking ahead to 2024, the World Gold Council (WGC) anticipates several factors will impact gold prices. These factors include the health of the global and US economies, demand from China and India, the attractiveness of Exchange Traded Funds, US bond yields, the value of the US dollar, and buying by central banks, which have played a significant role in supporting prices in 2022 and especially 2023.
Central bank buying is expected to remain robust in 2024. WGC Chief Strategist John Reade expressed surprise at the substantial increase in central bank purchases in 2022, a trend that continued in 2023. WGC estimates suggest that central bank demand contributed 10% or more to gold’s performance in 2023. Even if 2024 does not reach the same heights, above-average central bank buying is expected to provide an extra boost to gold prices.
While central bank purchases are anticipated to continue, economists currently foresee a “soft landing” in the US economy, with the Federal Reserve controlling inflation without a recession. Historically, soft landing environments have not favored gold, resulting in flat to slightly negative average returns. However, this time around, heightened geopolitical tensions in a key election year for major economies, combined with continued central bank buying, could provide additional support for gold.
Despite the soft landing thesis, uncertainties remain. The US November Consumer Price Index data and the Fed’s last meeting of 2023, which will release new forecasts and the “dot plot” indicating interest rate expectations, will be crucial factors. The key question is the number and timing of rate cuts in the coming year.
Additionally, with major elections taking place globally in the US, EU, India, and Taiwan, investors may seek portfolio hedges more than usual in 2024. Gold is likely to be among the preferred options for effective hedges in investor portfolios, according to the WGC.