Gold likely to rise in 2024 on geopolitical issues, weak dollar

Gold prices, which topped $2,000 an ounce on Monday, are expected to increase in 2024 with support coming from strong haven buying due to geopolitical issues and a slightly weaker US dollar, say analysts and experts in the sector. But there are a few who say the yellow metal could stabilise in 2024. “Gold prices are expected to increase in 2024... An escalation of the conflict in the Middle East could result in sharply higher prices due to increased demand for safe-haven assets,” said the World Bank Commodity Outlook.

“If US economic activity declines substantially and interest rate cuts — not currently expected by markets — come to fruition in the first half of 2024, this could create a more supportive environment for gold and see a stronger price outcome than forecast,” said the Australian Office of Chief Economist. 

Slew of factors

“Looking ahead towards 2024, investments flows into gold and thus prices will rise as global growth slows from 2.6 per cent in 2023 to 2.1 per cent in 2024, the dollar weakens further (with a 50 per cent probability of a shallow recession in the US), and the US Fed starts to cut rates,” said research agency BMI, a unit of Fitch Solutions.

“Central banks action, geopolitical tensions, currency movements — particularly the dollar and rupee, volatility in the dollar index,  US yields, economic data points, debt-related concerns, China’s economic development are a few factors which will be very important to watch out for in the near future,” said Manav Modi, research analyst, Commodity and Currency, Motilal Oswal Financial Services Ltd (MOFSL). 

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With the hope of the countries in conflict arriving at a truce, we foresee some stability in the gold prices during 2024 at a global level, said Colin Shah, Managing Director at Kama Jewelry. “Gold prices are most likely steady with a mild positive bias. It is highly unlikely for a major rally or liquidation pressure,” said Hareesh V, Head of Commodities at Geojit Financial Services. 

Impact of Middle-East conflict

Chintan Mehta, CEO of Abans Holdings, said several factors could contribute to the potential rise of gold in 2024. Firstly, the recent correction in US Treasury yields, coupled with signs of inflation peaking and expectations of forthcoming rate cuts, might trigger a cycle of declining interest rates. “This potential interest rate adjustment could boost gold prices. Furthermore, unstable regions worldwide experiencing war-like conditions could prompt central banks to accelerate their gold purchases,” he said. 

The World Bank’s Commodity Outlook said the conflict in the Middle East is set to lead to heightened global uncertainty, with substantial implications to gold prices if the conflict escalates. “Although the initial impact has so far been moderate, its escalation would exacerbate such uncertainty, which would lead to reduced risk appetite as well as lower consumer and investor confidence. These developments could lead to sharply higher gold prices,” it said.

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“We maintain our 2023 and 2024 gold price forecasts at $1,950/ounce. Prices have averaged $1,932 in the year-to-date as of November 20,” BMI said.

Expected range

Gold prices averaged $1,933 an ounce in the first half of 2023, with support coming from strong safe-haven buying and a slightly weaker US dollar, said the Australian Office of the Chief Economist. “With the strengthening disposable income of Indian gold buyers, we foresee gold prices to range between $1,850 and $2,050 mostly during the year,” said Kama Jewelry’s Shah. 

“Our expectation is for gold to maintain a range between $1,920 and $2,100 in dollar terms,” said Aban Holdings’ Mehta. 

Gold prices have spiked during previous episodes of geopolitical uncertainty such as conflicts. “In the event of a more widespread conflict in the Middle East, gold prices are likely to increase from already high levels as investors shift to safe-haven assets,” said the World Bank’s Commodity Outlook. 

At 6-week high

“Prices are forecast to remain elevated but decline gradually to average around $1,830 an ounce in 2025,” said the Australian Office of the Chief Economist.  

On Monday, gold was quoted at $2,014.30 an ounce, a six-week high. The precious metal has gained from the dollar‘s weakness and traders hope the US interest rates have peaked. 

BMI said it believes the main factors buoying gold in 2024 will be interest rate cuts by the US Fed, a weaker dollar and high levels of geopolitical tension. “The US Fed’s policy decisions would be the important trigger. If the US Central Bank decides to keep rates higher, money will flow into US assets like dollars and bonds which will continue to put pressure on safe assets like gold,” said Geojit Finance’s Harish. 

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Conversely, if the Fed starts cutting rates it would be a positive sign for bullion. In addition, the ongoing geopolitical instability and its impact on the global economy will also be under the investor radar, he said.

Domestic outlook

In India, the positive trend in gold could continue but significant dips in the yellow metal can be used as a buying opportunity, said MOFSL’s Modi. “For gold,  ₹58,500/10 grams on the domestic front, while on the higher side we could expect a target of ₹63,000 followed by ₹65,500, from a 12 month perspective,” he said

Shah said in terms of domestic prices, he does not see much of an impact from the buyers’ perspective owing to the traditional and sentimental value towards the yellow metal. “India being the second largest gold consuming nation in the world, consumption in the second half of every year is typically higher than in the first half, coinciding with the festive season followed by the wedding season,” he said.

Harish said a weak rupee, firm overseas prices and a steady demand from the physical and jewellery market would assist the metal to continue its positive outlook.

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The Indian rupee has historically depreciated against the dollar. “This depreciation is expected to persist since India operates as a net importer and maintains a current account deficit, a situation unlikely to change for at least 5-7 years. Thus, we expect gold to be in the range of ₹57,500-65,000,” said Mehta. 

Risks to the uptrend

On MCX, gold February futures were quoted at ₹62,000, up ₹380 over the Friday’s quotes. 

Mehta said  there are risks that could impact gold. Global interest rates remain relatively high. “Persistent inflation, a robust economy, and a steady labour market have been observed recently. If this economic momentum continues, delays in implementing rate cuts might occur as central banks work to absorb the excess liquidity injected during the Covid-19 pandemic,” he said. 

Such delays could exert downward pressure on gold prices. Additionally, the current surge in prices, linked to the Israel-Palestine conflict and ongoing de-escalation efforts may potentially lead to a small correction in the prices, Mehta said.

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