Top Trends That Will Affect Gold In 2024

(December 18, 2023 - Dean Belder)

The gold price hit a record high in 2023, and investors are now watching keenly to see what 2024 may bring. Here's what experts see coming in the new year.

The gold price reached a fresh all-time high in 2023, buoyed by financial and geopolitical instability.

The yellow metal neared a new record in the first half of the year as the banking crisis took hold, and it reached that milestone in H2, pushed upward by the conflict in the Middle East. However, interest rate hikes from the US Federal Reserve helped make interest-bearing assets more attractive to investors, tempering the draw of the precious metal.

With uncertainty continuing at the end of the year, what are the factors that will affect gold in 2024?

Fed's fight against inflation to stay in focus

The battle against inflation will be one of the critical stories affecting the price of gold in 2024.

The Fed held interest rates steady at 5.25 to 5.5 percent at its final meeting of the year, and the broad consensus is that the central bank is now finished hiking. However, that doesn't mean it will reverse course right away — with the latest inflation data showing a 3.1 percent increase in the consumer price index year-on-year, the central bank remains well off its 2 percent target for inflation. The most recent dot plot, which shows where each Fed official thinks the federal funds rate is headed, points to at least three rate cuts in 2024, assuming each is 25 basis points.

Although gold has performed well in 2023's higher-rate environment, it tends to fare better when rates are lower. For that reason, many market watchers believe gold will move higher when the Fed reverses course.

However, another key question is whether the Fed will be able to curb inflation without causing a recession. At the start of 2023, analysts were predicting a moderate to severe recession, but with the US economy continuing to show strength, opinions are split about about whether 2024 will bring a soft landing or a harsher outcome.

“The market is currently signaling that the inflation outlook is waning and that there could be increased potential for rate cuts in the early part of the year,” Joe Cavatoni, market strategist, Americas, at the World Gold Council, told the Investing News Network (INN). “We see this continuing to be the most significant factor to monitor going into 2024. The factors at play will be the strength/weakness of the US dollar and where inflation is headed, and the resulting level of real rates.”

2023 also saw artificial intelligence stocks help drive broader interest in the equities market, a trend that is expected to continue into 2024. The Bank of America (NYSE:BAC) is forecasting that the S&P 500 (INDEXSP:.INX) will reach a record 5,000 basis points in 2024, while Goldman Sachs (NYSE:GS) predicted in mid-November that the index would hit 4,700 basis points by the end of 2024 — it was able to break through that point by mid-December.

"The metals market is shaping up for a breakout. The macro drivers, particularly for gold and copper, continue to point towards record prices in 2024."

Geopolitics and central bank buying to support gold

As mentioned, high interest rates aren’t usually good for gold. But the precious metal has bucked the trend in 2023, soaring to a new record high of more than US$2,150 per ounce in early December.

Current geopolitical factors are also impacting metal's price, including Russia’s ongoing invasion of Ukraine and the conflict between Israel and Hamas. These factors have prompted individual investors to seek safe harbor in the yellow metal, and they've been joined by central banks, which are on track to set a record for annual gold purchases — as of the end of September, they had bought a combined 800 metric tons of gold.

“Central banks have indicated through our annual survey that their motivations for holding gold include the performance of the asset in times of crisis, its role as a long-term store of value and inflation hedge, its liquidity and how it is an effective portfolio diversifier and hedge against geopolitical risks,” Cavatoni said.

David Erfle, editor and founder of JuniorMinerJunky, also pointed to central bank buying as important for gold. He believes the metal has strong momentum thanks to this demand and other fundamentals. “A monthly/quarterly/yearly close above US$2,100 would trigger a strong advance in 2024 with an initial 13 year cup-and-handle breakout target of US$2,500, and Fibonacci measurements being US$2,460 and US$3,300,” he said in a November 26 email.

In a November 30 interview with INN, David Morgan, publisher of the Morgan Report, said he is also bullish on gold heading into the new year. “I still think gold is undervalued. It’s hit (the US$2,000 mark) three times — it’s up to the fourth time. Usually on the fourth try through at a level it holds it," he said.

“2024 is the beginning of the next major leg up in precious metals,” he continued, speaking the day before gold broke US$2,100. “US$2,072 is the previous high, and we’ll get above that — we’ll get US$2,100, US$2,200, US$2,300. Once we get into that modality, I don’t know if we’ll see above US$3,000, it depends on what happens with the rest of the economy. It depends if they pause and start lowering interest rates. If they do that it will put a boost to gold.”

The expectation that gold will hit more highs in 2024 is a sentiment that was echoed by John Feneck, portfolio manager and consultant at Feneck Consulting, in a November 22 interview with INN.

“I think the gold setup here is beautiful,” he said. “I’ve been very guarded on the price of gold — I’ve never talked new highs ever, I’ve never said US$2,500 this or US$5,000 that — (but) we are saying as a result of what happened October 7 that you are going to see a new all-time high in gold next year, which is new for us.”

Investor takeaway

2024 is shaping up to be another year of uncertainty. Investors have been keen on gold as tensions in the Middle East near a boiling point and as the war between Russia and Ukraine continues, but high inflation and conflicting thoughts about where interest rates are headed are pulling expectations for gold in opposite directions.

Many gold market watchers see opportunities to get into a sector that has largely been overlooked in recent years. As always, it's important for investors to do their due diligence and understand the risks, whether they go for the safe haven of physical gold or gold equities.