2023-12-10 18:12:00
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Investing.com – The price hit a new record high last week following rising above $2,100, and the combination of geopolitical tensions and continued central bank buying should keep demand buoyant next year, according to the World Gold Council.
The yellow metal surpassed the 2,100 per ounce mark on Monday before pulling back slightly, with spot prices hovering around $2,030 per ounce early on Friday.
Gold forecasts from the Supreme Council
In its Gold Outlook 2024 report released on Thursday, the World Gold Council noted that many economists now expect a “soft landing” in the US – with the Fed bringing inflation back to target without sparking a recession – which would be positive for the economy. Global.
The industry body (which represents gold mining companies) noted that historically soft landing environments “have not been particularly attractive for gold, resulting in flat or slightly negative average returns.”
“However, every cycle is different. This time, rising geopolitical tensions during a key election year for many major economies, coupled with continued central bank purchases, might provide additional support for gold,” the World Gold Council added.
Strategists also noted that the possibility of a soft landing is “uncertain,” while a global recession remains not ruled out.
“This would encourage many investors to hold effective hedges, such as gold, in their investment portfolios,” the World Gold Council added.
The reason for the rise in gold prices
The World Gold Council said that the two most important events that contributed to the increase in demand for gold in 2023 were the collapse of Silicon Valley Bank and the Hamas attack on Israel, estimating that geopolitical events added between 3% and 6% during the year.
“In a year in which major elections are taking place around the world, including in the United States, the European Union, India and Taiwan, investors’ needs for portfolio hedging are likely to be higher than usual,” the report said, looking to 2024.
Gold price forecasts in 2024
John Reed, chief strategist at the World Gold Council, said gold prices are likely to remain volatile next year. They are expected to respond to individual economic data that determines the likely path of Fed policy until the first interest rate cut takes effect.
However, while interest rate cuts are generally seen as good news for gold (with cash yields falling and savers seeking higher-yielding investments), Reed noted that there are two factors that may make “the expected easing of interest rates less favorable for gold.” “Compared to how the situation appears at first glance.”
First, if inflation slows more quickly than interest rates – as is generally expected – real interest rates will remain high. Second, weaker-than-expected growth might hurt consumer demand for gold.
“I’m not saying interest rates need to go back to zero to revive demand, but the combination of the first cut in the US and cuts in other major economies will change sentiment somewhat towards gold,” Reid said.
Furthermore, central banks have been a major source of demand in the global gold market over the past two years, and 2023 is expected to be a record year. The World Gold Council expects this trend to continue in 2024.
Reid said the organization was surprised by the significant increase in central bank purchases in 2022 and that the pace of purchases continued this year.
The World Gold Council estimates in its report that central bank demand added 10% or more to gold’s performance in 2023, and notes that even if 2024 does not reach the same heights, purchases are expected to continue, providing an additional boost to gold prices. .
“We expect central bank purchases to continue next year on a net basis, which has been largely the case since the global financial crisis,” Reid said.
“I expect central banks to be the main player in the gold market once more in 2024, but I think it would be too optimistic to say it will be another record or record-breaking year.
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