• Gold price will break $2,000 again at the end of 2023
• Geopolitical uncertainty, US dollar, central bank purchases & interest rate cut fantasies support
• JPMorgan confident for gold – new highs expected
The price of gold increased significantly last year. Especially in the last quarter of the year, the precious metal picked up speed after the attack by the terrorist organization Hamas on Israel in 2023 and the associated geopolitical unrest – in addition to the already existing conflicts, such as the Ukraine war – and is once again over around 2,000 dollars mark climbed. The weak US dollar, central bank purchases and the expectation that the US Federal Reserve Bank will lower the key interest rate also had a supportive effect.
JPMorgan confident in gold
The major US bank JPMorgan is confident that the upward movement in the gold price will continue in 2024. Natasha Kaneva, head of global commodities strategy at JPMorgan, is quoted in a report by the US major bank as saying: “In commodities, for the second consecutive year, the only structurally bullish forecast we have is for gold and silver.” Gregory Shearer, Head of Base and Precious Metals Strategy at JPMorgan, explains: “Across all metals, our strongest belief is in an optimistic medium-term outlook for both gold and silver over the course of 2024 and into the first half of 2025, “although the timing of entry will still be crucial.” He points out that gold prices currently remain quite high “relative to underlying interest rates and exchange rate fundamentals” and appear vulnerable to a pullback in the near future. However, such a decline could also offer investors an opportunity to get in before a breakout rally could begin around the middle of the year.
Geopolitical uncertainties and expected interest rate cuts
JPMorgan cites the economic and geopolitical uncertainties among the reasons for this, which ensure that gold is viewed as a safe haven for storing value because it has a low correlation with other asset classes and therefore as a kind of insurance in falling markets and in times of geopolitical stress could serve.
In addition, the attractiveness of gold is likely to increase further given the expected interest rate cuts by the US Federal Reserve. After the Fed raised the key interest rate to its highest level in more than 22 years as a result of escalating inflation, the Federal Open Market Committee (FOMC) left the key interest rate unchanged in December and signaled three rate cuts for 2024.
Central bank purchases are likely to provide further support
In addition to increasing geopolitical tensions and the expectation of imminent interest rate cuts, central bank purchases also supported the price of gold last year. In the first three quarters of 2023, central banks bought more than 800 tons of gold on a net basis, according to JPMorgan. The central banks were led by the Chinese central bank. And this year too, central bank purchases are likely to remain a key driver for the gold price, according to experts. JPMorgan Research estimates that global purchases will amount to 950 tonnes in 2024 and China remains a significant consistent buyer.
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“There is still room for some central banks to increase reserves as institutions look to diversify their foreign reserves. Therefore, purchases are likely to remain structurally elevated compared to the late 2010s,” said Gregory Shearer.
ETF inflows expected
In addition, according to JPMorgan, investors still have plenty of scope to increase their long positions by purchasing gold on an exchange or via an ETF. ETF holdings of gold have been falling steadily since mid-2022. According to experts, a further expansion of investor positioning triggered by the start of an interest rate cutting cycle could have a positive impact on gold bullion and support a gold price rally in the second half of 2024.
“When interest rates eventually fall, we expect recent ETF outflows to reverse and retail-led ETF inflows to return, which will also drive gold investor demand and reinforce a rise in prices,” said Shearer. “Continued robust central bank purchases, as well as increased physical demand amid price declines, are likely to remain significant support for prices even in the final turns of the Fed cycle.”
Gold Price Predictions
According to estimates by JPMorgan Research, gold prices are expected to reach $1,980 in the second quarter of 2024, rise to $2,100 in the third quarter and reach new nominal highs at $2,175 in the fourth quarter. Experts also expect the price of gold to continue rising in 2025. The forecast for the first quarter of 2025 is $2,225 and for the second quarter of 2025 at $2,275, before the gold price is expected to peak at $2,300 per ounce in the third quarter of 2025. For the final quarter of 2025, JPMorgan Research is forecasting a gold price of $2,275.
The forecasts are based on U.S. growth slowing to 0.5 percent by the second quarter of 2024, according to JPMorgan economists, leading to a Fed rate-cutting cycle in the second half of 2024, resulting in cuts of 125 basis points . In addition, as the JPMorgan report states, the gold price forecasts are based on official US Federal Reserve forecasts for core inflation. The Fed expects core inflation to fall to 2.4 percent this year, 2.2 percent in 2025 and a return to the 2 percent target in 2026.
Based on the underlying economic outlook, the experts also expect nominal yields on 10-year US government bonds to fall by 30 basis points to 3.65 percent from the forecast 3.95 percent at the end of the first quarter by the end of 2024. This would, in turn, lead to a decline in real 10-year US Treasury yields by the same magnitude (from 1.75 percent to 1.45 percent) over the same period.
“We expect the Fed’s rate-cutting cycle and declining U.S. real yields over this period to once again be the primary drivers of gold’s breakout rally later in 2024. Gold’s inverse relationship to real yields has historically been the case during the Fed rate hike cycles weakened before strengthening again as yields fell in the transition to a rate cut cycle,” said Shearer.
Editorial team finanzen.net
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