A weaker US dollar, lower bond yields and increasing geopolitical tensions in the Middle East are behind gold soaring to a new high daily. The rally in the yellow metal prices will likely be sustained and it may exceed $3,000 per ounce before the end of 2024, say analysts and industry leaders.
“We note that the US Fed rate cut comes against a myriad of geopolitical tensions, with conflict in the Middle East and the upcoming presidential elections in the US at the forefront. Our gold price forecast of $2,375/ounce for 2024 and $2,500/ounce for 2025 assumes prices will be well supported in the coming months, but with limited further upside,” said research agency BMI, a unit of Fitch Solutions.
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Price forecasts
Last week, BMI raised its 2024 gold price forecast from $2,250/oz to $2,375/oz, expecting prices to trade within the range of $2,500-2,800 in the coming months. This marks a departure from the average $1,943/oz in 2023.
The Citigroup forecast that gold prices are set to hit $3,000 per ounce due to significant expansion in financial flows. It attributes its bullish gold price prediction to the weakening US labour market, disinflation, and the Federal Reserve’s dovish pivot.
Goldman Sachs, too, raised its price forecast to $2,900 per ounce from $2,700 for early 2025 citing gradually rising ETF flows with interest rate cuts in the West and China and higher central bank purchases.
It raised its 2024 average gold price forecast to $2,395 from $2,357 and 2025 outlook to $2,973 from $2,686 an ounce.
Colin Shah, MD, Kama Jewellery, in a podcast with businessline said with expectations of further cuts in the US Fed interest rates before the year ends, gold could reach $2,900, or even $3,000.
Demand may drop
“Gold is seen as a haven, particularly amid geopolitical tensions and uncertainties surrounding the global economy,” he said.
According to Joni Teves, precious metals strategist at UBS, while the escalating conflict between Iran and its proxies and Israel could cause short-term spikes in the gold price, the reason gold and silver will continue to rally higher has nothing to do with geopolitics. He said this in an interview with Bloomberg Television before the current Middle East tension escalated.
According to Australia’s Office of the Chief Economist, gold prices are forecast to remain elevated throughout the forecast period to 2028. However, it expects demand in 2024 and 2025 to reduce due to high prices.
ING Think, the economic and financial analysis wing of Dutch multinational financial services firm ING, said money managers increased their net longs in gold to 254,842 lots last week.
BMI said gold prices have averaged $2,295 year-to-date as of September 26. On Wednesday, the precious metal ruled at $2,650.98 dropping from a peak of $2,685 an ounce.
“...we expect higher highs for gold in the coming months,” the research agency said.
Defining factors
In the coming months, gold prices will depend on the number of rate cuts that the US Fed will resort to. “Rate cuts hold the key to interest in gold, as lower bond yields would divert investment into the non-yielding yet haven asset,” it said.
BMI said the US dollar is expected to weaken due to the Fed’s cutting cycle, a slowdown in growth, continuity in US policy in the case of a Kamala Harris victory and a slight overvaluation of the Greenback.
“Further US dollar strength, if the greenback breaks out to the upside, is likely to cap interest in gold,” it said.
The research agency said though the global growth outlook for 2024 and 2025 is 2.5 per cent, it masks several considerations. These include the change in the composition and key drivers of growth, Kamala Harris being forced to govern with a divided Congress in the event of a victory and monetary policy pivots in developed markets.
BMI said inflation will continue to ease in 2025, indicating that gold demand as a hedge against inflation will slow as well. However, the situation could change in the event of Donald Trump winning the US presidential election.