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Gold Price Predictions: A Rally to Record Highs in 2024?
Gold's Potential to Surpass Previous Records
As we look towards the future, gold prices are predicted to rally to unprecedented highs in 2024. This forecast is driven by the expected tapering of interest rates and the looming fears of a recession, which only serve to elevate gold's role as a safe haven asset. Spot gold prices reached a record intraday high of $2,072.5 on August 7, 2020, according to Refinitiv data. However, analysts suggest that this level could be surpassed, pushing gold prices beyond the previous record. Bart Melek, TD Securities' managing director and global head of commodity strategy, expects gold to move above $2,100 in late 2023 or early 2024. His optimism is rooted in a potential pause in the U.S. Federal Reserve's tightening cycle.
The Impact of the Federal Reserve's Policies on Gold Prices
Melek is bullish on gold, believing that the Federal Reserve will shift its policy away from its current restrictive mode. He anticipates this change to occur before the 2% inflation target is reached. As of now, spot gold is trading at $1,912.26 per ounce. Melek predicts a breakout for gold in 2024, with prices reaching new highs and beyond. The Federal Reserve began its steady stream of rate hikes in March 2022, as inflation reached its highest level in 40 years. In less than two years, it has raised borrowing costs to between 5.25% to 5.5%.
Gold's Performance Against Other Major Asset Classes
Over the past 12 months, gold has outperformed most other major asset classes. Melek attributes this to gold's ability to resist rising interest rates and its value as a safe bet against inflation. Some analysts are particularly bullish on gold, predicting a target of $2,500 by the end of next year — a figure that's more than 26% higher than current levels.
Recessionary Forces and Their Impact on Gold Prices
David Neuhauser, founder of Livermore Partners, predicts that recessionary forces may start to take hold later this year and gain momentum in 2024. He expects stagflation to persist in the global economy for the next few years as inflation falls to between 3% to 5%. Gold tends to perform well in periods of economic uncertainty such as recessions and stagflation due to its status as a reliable store of value. It is often used as a hedge against inflation.
Gold Prices and the Global Economy
Randy Smallwood, CEO of Wheaton Precious Metals, is confident that we will see $2,500 gold within a couple of years. He believes that any type of recessionary move would be positive for gold, noting that he's seeing weakness in the Chinese and U.S. economy. UOB also forecasts that gold prices will set new records, but only by the second half of 2024.
Gold Prices and Interest Rates
Heng Koon How, UOB's head of markets strategy, global economics and markets research, identifies the anticipated peak in the Fed rate hiking cycle and the upcoming topping out of US Dollar strength as key drivers in their positive outlook for gold. He explains that gold should trade higher when interest rates stop rising and the greenback retreats. He also anticipates a return of physical gold jewelry demand from China and India as both economies stabilize and retail spending returns.
The Future of Gold Prices
Heng predicts that gold will trade at $2,100 per ounce by the second quarter of 2024. Gold prices tend to have an inverse relationship with interest rates. As interest rates rise, demand for gold drops as alternative investments like bonds become more appealing and yield better returns. U.S. inflation fell to its lowest annual rate in more than two years in June, rising just 0.2% on a monthly basis. The Federal Reserve in July approved a much-anticipated interest rate hike that took benchmark borrowing costs to their highest in more than 22 years.
Central Bank Purchases and Consumer Demand for Gold
Central bank purchases of gold have been "consistently strong," alongside consumer demand for the precious metal, Heng pointed out. He also sees a return of physical gold jewelry demand from China and India as both economies stabilize and retail spending returns. Chinese retail gold demand has been resilient in 2023 even as consumption of other commodities remained weak, according to a July report by Citi.
Emerging Market Central Banks and Gold
Physical demand for gold across some regions has returned, and central banks' gold demand remains strong, said Nicky Shiels, Head of Metals Strategy at precious metals company MKS PAMP. Emerging market central banks continue to de-dollarize and utilize gold as an alternative in the event of any further Western sanctions. BRICS countries, namely Brazil, Russia, India, China and South Africa, are also reportedly looking at moving away from the U.S. dollar to a new currency backed by gold.
Implications for New Businesses: A "Hot Take"
The projected rally of gold prices to record highs in 2024 provides a unique perspective for new businesses, particularly those in the finance and investment sectors. This prediction, driven by tapering interest rates and looming recession fears, underscores gold's enduring role as a safe haven asset.
For businesses in the financial sector, this forecast highlights the need to closely monitor market trends and adjust investment strategies accordingly. The potential pause in the U.S. Federal Reserve's tightening cycle and the anticipated peak in the Fed rate hiking cycle could significantly impact investment decisions.
For businesses in the retail sector, particularly those dealing with gold jewelry, the predicted rally in gold prices could influence purchasing decisions and pricing strategies. The expected return of physical gold jewelry demand from China and India as both economies stabilize and retail spending returns could open up new market opportunities.
In conclusion, this forecast serves as a valuable insight for new businesses. In a volatile economic climate, businesses must stay abreast of market trends and forecasts to make informed decisions and strategies. The predicted rally in gold prices is a trend worth watching, with potential implications across various sectors.
Article First Published at: https://www.cnbc.com/2023/08/11/gold-prices-to-breach-all-time-highs-with-some-calling-for-2500.html
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