Spot gold prices have hit record highs, trading above $2,350/oz, and the market is up around 13% since the beginning of the year. The precious metal has had a record-breaking run since mid-February, boosted by expectations for US rate cuts, geopolitical tensions, and China’s economic woes.
US Federal Reserve policy is gold’s main driver. There’s optimism it’ll soon cut rates, but it wants to see more evidence that inflation is a tamed beast. We’re expecting interest rate cuts this year, but if it continues its cautious approach, gold prices risk pulling back.
The key driver for the outlook of gold prices for the past year has been the Federal Reserve policy with optimism that the Fed is getting closer to the much-anticipated pivot fuelling the precious metal’s rally. The Federal Reserve is expected to cut this year but still needs to see more evidence that inflation is easing first. If the US Fed continues its cautious approach to easing, gold prices risk a pullback.
The prospect of the Fed’s monetary easing has also benefited silver, which has surged along with gold, up 16% since January to its highest levels since 2021. Silver’s advance has come with an increase in ETF holdings. That contrasts gold, which is yet to see a rebound in ETF demand. Investor holdings in gold and silver ETFs generally rise when prices gain, and vice versa. There is plenty of room for investors to buy the gold market, but maybe we need to wait for the Fed to start cutting rates before investors jump fully into the market.
We expect gold prices to trade higher this year as safe-haven demand continues to be supportive amid geopolitical uncertainty with the ongoing wars and the upcoming US election. We have revised our 2024 gold forecast higher, and we now expect prices to peak in the fourth quarter, averaging $2,300/oz. We expect an average of $2,206/oz in 2024, assuming that the Fed starts cutting rates in the second half of the year, along with weakness in the dollar and treasury yields, while geopolitical risks continue to linger.
