The WGC estimated that geopolitics contributed between 3% and 6% to gold’s performance over the course of the year, and that the two most significant events for gold demand in 2023 were the failure of Silicon Valley Bank and the Hamas attack on Israel.
The WGC predicted that central bank demand contributed at least 10% to the performance of gold in 2023 and stated that above-trend buying should continue to support gold prices even if it does not reach the same heights in 2024.
Spot prices for the yellow metal were averaging $2,030 per ounce early on Friday, having broken through $2,100 per ounce on Monday before somewhat cooling off.
Following a roaring 2023, gold prices reached yet another record high this week. The World Gold Council predicts that demand for the metal will be robust in 2019 due to a combination of geopolitical tensions and ongoing central bank purchases.
Spot prices for the yellow metal were averaging $2,030 per ounce early on Friday, having broken through $2,100 per ounce on Monday before somewhat cooling off.
The World Gold Council stated in its Gold Outlook 2024 report that many economists now predict a “soft landing” in the United States, in which the Federal Reserve will bring inflation back to target without starting a recession. This would be advantageous for the world economy. The report was released on Thursday.
Soft landing environments have historically “not been particularly attractive for gold, resulting in flat to slightly negative average returns,” according to the industry body that represents gold mining companies.
Nevertheless, each cycle is unique. This time, increased geopolitical unrest amid an important election year for many major economies, along with ongoing central bank purchases, may give gold further support, the WGC continued.
Its strategists also pointed out that a global recession is still a possibility and that a soft landing is “by no means certain.”
The WGC continued, “This should encourage many investors to hold effective hedges, like gold, in their portfolios.”
According to the WGC, which estimated that geopolitical events contributed between 3% and 6% to the price of gold over the course of the year, the two most significant events for gold demand in 2023 were the failure of Silicon Valley Bank and the Hamas attack on Israel.
As the report looked ahead to 2024, it stated that “investors’ need for portfolio hedges will likely be higher than normal in a year with major elections taking place globally, including in the U.S., the EU, India, and Taiwan.”
John Reade, the chief market strategist at WGC, predicted on Thursday that gold prices would probably stay range-bound but erratic in the upcoming year. Until the first interest rate cut is confirmed, he anticipates that they will respond to specific economic data points that determine the likely course of Fed policy.
Based on CME Group’s FedWatch tool, markets are pricing in the first 25 basis point reduction to the Fed funds rate as early as March of next year.
In spite of the fact that rate reductions are typically viewed as positive news for gold (since cash returns decline and investors seek out higher-yielding options elsewhere), Reade emphasized that there are two potential reasons why “expected policy rate easing may be less sanguine for gold than it appears on the surface.”
According to the WGC’s analysis, central bank demand boosted gold’s performance by at least 10% in 2023. It also stated that above-trend buying should continue to support gold prices in 2024, even if the market does not reach the same highs.
“We anticipate that net central bank purchases will persist in 2019 as has been the norm since the global financial crisis,” Reade stated.
“I think it would be optimistic of us to say that it’s going to be another record year or a record-matching year, but my own expectation is that central banks are very much going to be the sort of prominent story in the gold market in 2024.”
