The World Gold Council’s (WGC) recent report suggests that the surge in gold prices surpassing US $2,000 towards the end of 2023 might signify a larger upward trend in 2024.
In their 2024 outlook, WGC analysts outline three potential scenarios influencing gold prices in the coming year. Joseph Cavatoni, North American markets strategist at WGC, highlighted in an interview with Kitco News that the Federal Reserve’s actions and the possibility of rate cuts will play a pivotal role in shaping the gold market.
Cavatoni expressed that the gold market is currently in a state of anticipation, closely monitoring the decisions of the Federal Reserve. In the first scenario, a soft landing for the U.S. economy is envisioned, avoiding a recession but still experiencing below-trend growth. This aligns with the current market consensus, providing some support for gold, with prices likely to maintain their current trajectory. Cavatoni mentioned that in this scenario, the FED might consider only two rate cuts in the upcoming year if the economy continues at its current pace.
The second scenario paints a picture of a hard landing, with the U.S. economy plunging into a recession. This would create a bullish environment for gold, as the central bank would be compelled to aggressively cut rates to bolster the economy. Cavatoni emphasized that the uncertainties and risks associated with a hard landing could significantly benefit gold.
The third and least likely scenario envisions a no-landing situation, where the U.S. economy sustains solid above-trend growth. WGC assigns a mere 10% probability to this outcome.
While the Federal Reserve’s actions will be a major factor influencing the gold market in the coming year, Cavatoni stressed that other elements would also impact prices. Despite the Federal Reserve’s rapid interest rate hikes in the past year, gold managed to trade around US$2,000 and establish a new record high. Cavatoni pointed out that the Fed’s monetary policy sets the tone, but geopolitical uncertainties and central bank demand remain significant drivers for gold.
Central bank gold demand, according to Cavatoni, has undergone a notable transformation, with nations diversifying away from the U.S. dollar. Initial expectations for average central bank demand at the beginning of 2023 have shifted towards near-record levels, mirroring the purchases seen in 2022.
Cavatoni highlighted that the factors driving central bank gold demand have strengthened in recent months, making the case for increased demand in 2024. Simultaneously, rising geopolitical uncertainties leading into 2024 make gold an attractive safe-haven asset.
Despite a recent selloff after reaching an all-time high above $2,150 per ounce, Cavatoni believes that gold’s technical outlook remains complicated but indicative of the market’s potential when conditions change. While the WGC refrains from providing official price targets, Cavatoni anticipates gold prices to achieve new all-time highs in 2024, particularly if rate cuts materialize.