15 December 2023

Gold grabbed the attention of market observers in early December, as the yellow metal briefly reached an all-time high of US$2,135 per ounce.

While some analysts have dismissed this price peak as lacking fundamental significance or the result of technical trading, what is not in dispute is a long-term interest by experts in gold’s trajectory, given its sustained rise in recent years.

In 2019, the average gold price was US$1,392 per ounce—a 40% increase in four years. In 2023, the average price is expected to reach US$1,950, following 2022’s cumulative average of US$1,800.¹

With gold prices touching $2,100 in December, analysts anticipate a continued upward trend, projecting that geopolitical uncertainty, a potentially weaker U.S. dollar, and expected interest rate cuts in 2024 could keep gold above $2,000.² Some analysts are forecasting potential highs of $2,300 per ounce by the end of 2024.³

So, the question arises: Why has gold been on the rise, and how long will this trend persist? To unravel this, let’s take a closer look at some of the key factors in gold’s journey to its current highs.

Investor Demand for Gold in 2023

In the first half of 2023, gold saw an unprecedented surge in investor demand, particularly in Q1, and maintained a price range of $1850-$2000, peaking at $2048.45 on April 13. Central banks around the world also acquired a historic 387 tonnes of gold in the first half of the year, anticipating their continued demand in the latter half of the year. Overall gold demand, including both the investment and jewelry sectors, grew 7% year-over-year from the same period in 2022.⁴

Despite a slight decline in September due to the formalization of the Fed’s higher-for-longer rate policy and expectations of further rate hikes, the gold market remains positive for 2023, registering a 1.9% gain between the start of January and the end of September. And, notably, throughout 2023 the demand for gold has surpassed that of cryptocurrency investments by nearly 50%, underscoring the enduring appeal of the precious metal in uncertain financial times.⁵

Factors Influencing Gold Prices

The primary factor impacting the price of gold throughout the year has been U.S. and global inflation, with central banks, including the U.S. Federal Reserve, employing interest rate hikes to combat rising inflationary pressures. The perception amongst many investors was that such moves were, in fact, lagging actual trends, leading to uncertainty. The U.S. economy’s continued growth throughout the year despite predictions of an upcoming recession also aided this perception.⁶

Central banks worldwide, including China, Turkey, and Russia, also strategically increased their gold holdings in 2023, considering it an alternative reserve currency. This shift is part of the “de-dollarization” trend, with countries diversifying away from the U.S. dollar as a reserve currency. A recent survey by The World Gold Council indicates a growing optimism among central banks regarding gold’s future role, foreseeing an increased share in total reserves.⁷

Likewise, the geopolitical landscape, marked by conflicts such as the ongoing wars in Ukraine and Gaza, adds to gold’s appeal as a safe haven asset. With no end in sight to either of these conflicts, concerns about long-lasting wars can drive investors to allocate even more toward gold as they seek stability in their portfolios.⁸

At the same time, however, demand for gold is not driven solely by traditional factors like interest rates. A rising trend towards gold among wealthy consumers in emerging markets has also contributed to this year’s price growth. Countries like India continue to be significant buyers of gold, emphasizing the metal’s enduring role as a store of wealth, especially in inflationary times.⁹

Where Does Gold Go in 2024?

Overall, the price of gold in 2024 will likely be influenced by many of the same factors that drove up demand in 2023, including economic, geopolitical, and central bank activity. Looking at these economic conditions and political uncertainties, most experts anticipate a rise in gold prices throughout 2024. These projections range from an average price of $2100 to as high as $2300 per ounce, depending on which analyst you talk to.^{10 11}

Stubborn inflation, particularly in the U.S., will remain a key price driver. Forecasts are for U.S. inflation around 3.1% at the beginning of 2024, potentially dipping to 2.60% by the third quarter. This sustained inflation could contribute to increased demand for gold, historically seen as a hedge in times of economic uncertainty and inflationary pressures.¹²

Geopolitical tensions, exemplified by events like the Israel-Hamas conflict, will also continue playing a pivotal role in influencing gold prices. Such events trigger a flight to safety, with investors turning to gold as a safe-haven asset, thereby exerting upward pressure on gold prices. The upcoming U.S. presidential election in 2024 could further heighten the demand for gold as investors seek to hedge against potential financial risks associated with a possible change in leadership in what is sure to be a contentious race.¹³

Additionally, any policy shift by the Federal Reserve in 2024, including lower interest rates, may weaken the U.S. dollar, making gold more attractive to international buyers and potentially driving up demand.¹⁴ And with nearly a quarter of the world’s central banks signaling their plans to increase gold reserves in the next 12 months, there is potential for higher demand in the official sector.¹⁵

Given the dynamic nature of the gold market, the factors driving investor demand, and the potential opportunities and challenges for gold investment in 2024, investors would be wise to stay informed about market developments and consider the multifaceted aspects influencing gold prices as they make their investment decisions.

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Sources

1. Karim, N., “’Gold is about fear, not greed’: Why the yellow metal is up 40% in four years,” Financial Post, December 6, 2023; https://financialpost.com/commodities/mining/behind-gold-record-rise-where-prices-headed-next
2. Ying Shan, L., “Gold price hits $2,100 for record high — and analysts don’t expect it to stop there,” CNBC, December 3, 2023; https://www.cnbc.com/2023/12/04/gold-prices-set-for-new-highs-amid-economic-geopolitical-uncertainty.html
3. Yale, A., “Will gold prices increase in 2024? Here’s what the experts think,” CBS News, November 27, 2023; https://www.cbsnews.com/news/will-gold-prices-increase-in-2024-heres-what-the-experts-think/
4. “What’s Driving the Price of Gold?,” Nasdaq, October 25, 2023; https://www.nasdaq.com/articles/whats-driving-the-price-of-gold
5. Ibid
6. “Where Will Gold Prices Be Heading?” Nasdaq, November 27, 2023; https://www.nasdaq.com/articles/where-will-gold-prices-be-heading
7. Karim, N., “’Gold is about fear, not greed’: Why the yellow metal is up 40% in four years,” Financial Post, December 6, 2023; https://financialpost.com/commodities/mining/behind-gold-record-rise-where-prices-headed-next
8. Yale, A., “Will gold prices increase in 2024? Here’s what the experts think,” CBS News, November 27, 2023; https://www.cbsnews.com/news/will-gold-prices-increase-in-2024-heres-what-the-experts-think/
9. Stepek, J., “The Factors Driving the Gold Price to New Highs,” Bloomberg, December 4, 2023; https://www.bloomberg.com/news/newsletters/2023-12-04/the-factors-driving-the-gold-price-to-new-highs
10. Ying Shan, L., “Gold price hits $2,100 for record high — and analysts don’t expect it to stop there,” CNBC, December 3, 2023; https://www.cnbc.com/2023/12/04/gold-prices-set-for-new-highs-amid-economic-geopolitical-uncertainty.html
11. Yale, A., “Will gold prices increase in 2024? Here’s what the experts think,” CBS News, November 27, 2023; https://www.cbsnews.com/news/will-gold-prices-increase-in-2024-heres-what-the-experts-think/
12. Ibid
13. Yale, A., “Will gold prices increase in 2024? Here’s what the experts think,” CBS News, November 27, 2023; https://www.cbsnews.com/news/will-gold-prices-increase-in-2024-heres-what-the-experts-think/
14. Stepek, J., “The Factors Driving the Gold Price to New Highs,” Bloomberg, December 4, 2023; https://www.bloomberg.com/news/newsletters/2023-12-04/the-factors-driving-the-gold-price-to-new-highs
15. Karim, N., “’Gold is about fear, not greed’: Why the yellow metal is up 40% in four years,” Financial Post, December 6, 2023; https://financialpost.com/commodities/mining/behind-gold-record-rise-where-prices-headed-next

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