US rate cuts, central bank buying, wars seen to fuel gold to record highs

Driven by expectations of imminent interest rate cuts by the Federal Reserve, gold prices are on track for their largest weekly increase in five months before hitting $2,200 in the first half and $2,300 in the second half of this year.

According to precious metals analysts, the main factors affecting gold’s price are inflation, rising demand from central banks, de-dollarisation of developing economies, microeconomic situation, and geopolitics. Other factors favouring the yellow metal’s impending historical rally are geopolitical uncertainty and the likely weakening of the dollar.

The anticipation of an impending rate cut grew following remarks by Federal Reserve Chair Jerome Powell, hinting at potential rate cuts in the near future. This has led to gold hovering near historic highs, with traders eagerly awaiting the upcoming US jobs report, analysts said.

“The combination of these factors will create conditions for the growth of gold price in 2024—in the first half of the year, the cost of the precious metal may exceed $2,200 per troy ounce. In the second half of the year, the upward trend in gold is likely to continue, and gold may show a price of $2,300 per ounce, so the average price in 2024 will be $2,170,” they said.

Ole Hansen, head of Commodities Strategy, Saxo Bank, said: “At the end of last year, we forecasted gold could reach $2300 in 2024, so while the latest rally is in line with our general view on the direction of gold, we have been left surprised by the timing of the run-up to a fresh record. Given the need for rate cuts to attract ETF investors back into gold, we have been calling for patience regarding the timing of the next move. Without any participation from ETF investors who sold nine tons last week, the rally was primarily driven by under-invested hedge funds forced back into the market as several key resistance levels broke.”

“Without a notable pickup in demand from investors in ETFs to take over from hedge funds that will soon reach their desired level of exposure, gold may hit a plateau followed by a period of nervous trading as recently established longs may reduce exposure. Overall, we maintain our $2300 target, with the technical picture potentially pointing to an even higher level around $2500,” said Hansen.

“Considering the expected interest rate cuts, central banks’ role in the gold market, and a resilient US labour market, a cautiously bullish outlook seems reasonable for the short term. Investors might benefit from closely monitoring central bank actions and the upcoming US jobs data for further market insights,” Dubai-based bullion traders said.