The yellow metal will continue to sparkle in the new year – Business Insider India

• Experts say some short-term correction from the all-time high in the next few months should offer an entry point.
• Apart from gold’s safe haven status, de-dollarisation is also adding to its lustre.
• Investors expected to hold reliable safeguards like gold within their investment portfolios in 2024.

Optimism for early Fed rate cuts in 2024 weakened the dollar and bonds, sending gold prices soaring to their highest point in almost three weeks recently. In fact, a World Gold Council report expects one in four central banks to increase their gold reserve holdings which mean more demand. This and conditions in the Middle East have analysts expecting an upside in 2024 with prices moving towards $2,200.

Market watchers expect the yellow metal to at least hold around $2,000 per ounce in the first part of next year.

If the interest rate rate cycle has peaked, that should keep gold well supported.

However, according to Ghazal Jain, fund manager of alternative investments at Quantum AMC, rate cut expectations and the up move in gold is vulnerable to a reversal in the short term in case of a higher for longer Fed stance or hawkish Fed commentary to push back against market expectations and loosening of financial conditions.

How gold prices may pan out

According to the World Gold Council, as we look forward to 2024, investors will likely see one of three scenarios.

The general expectation among market experts is for ‘soft landing’ in the US, a scenario historically not favourable for gold, leading to flat or slightly negative outcomes.

However, each economic cycle differs. Presently, increased tensions on the world stage during important election years for major economies, along with ongoing central bank purchases, might offer added support to gold.

Moreover, the certainty of the Federal Reserve successfully guiding the US economy to a safe landing with interest rates exceeding five percent remains uncertain.

The possibility of a global economic downturn still looms, prompting investors to consider holding reliable safeguards like gold within their investment portfolios.

The global economy faces three likely scenarios in 2024

Source: World Gold Council

Most experts expect some short-term correction from the all-time high to the tune of 5-7% in the next few months – offering a brief but decisive entry point.

“After the first quarter of 2024, we might see another positive cycle after interest rate cuts,” says Jateen Trivedi, VP and research analyst at LKP Securities tells Business Insider India..

Jain also says that the outlook is positive even if there could be some volatility in the next few months.

The China factor

There is another factor at play that can offer long-term support to prices is the aggressive central bank purchases of gold. Apart from the yellow metal’s safe haven status, de-dollarization is also adding to its lustre.

“One of the main drivers of gold demand is China, India, Russia, and Turkey, which buy record amounts of gold to protect their economy from dollar fluctuations and increase their financial independence,” says a report by Kedia Advisory.

China, which is the biggest global buyer of oil, has been in talks with Saudi Arabia to sell them oil in yuan since 2022. “It is possible that the Saudis may have asked for the yuan to be backed by gold, to bolster its lack of free convertibility. This could explain why the Chinese central bank has been buying more and more gold each year,” explains Jamal Mecklai, CEO of Mecklai Financial in his note.

China has already announced its goal of raising gold holdings to 5%, and its share at the end of Q2 2023 is at 3.84%. “The possibility that China may see fit to push the share of its gold holdings even higher than 5%, we may well be seeing just the start of a real bull market in gold,” adds Mecklai.

We have seen a very bullish 2023, and at this point in time, it’s very possible that gold may continue to shine in 2024.