Geopolitical uncertainty will support gold prices through 2024 - World Bank Commodity Outlook
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(Kitco News) - Geopolitical turmoil has once again impacted the gold market and safe-haven demand has the potential to drive prices even higher as any potential escalation in Israel's war with Hamas creates further chaos in the Middle East, according to analysts at the World Bank.
The international financial institution published its latest commodity market outlook Monday, saying they see average gold prices rising 6% in 2024 to $1,900 an ounce, before the market cools the following year.
"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," the analysts said in the report.
The World Bank's bullish outlook for gold comes as analysts expect the ongoing conflict to broadly impact commodity markets from energy to agriculture.
"An escalation of the conflict is a major risk to commodity markets because the region has a substantial share of the global oil supply," the analysts said. "Disruptions to energy supplies and spikes in energy prices would affect other commodities through higher production costs, raising food and metals prices. In particular, as food prices increase, global food insecurity, already on the rise, could reach new heights."
While, geopolitical safe-haven demand for gold has never proven to be a consistent driver for the precious metals market, analysts at the World Bank note that this time could be different as the Middle East conflict comes as Russia continues to invasion of Ukraine.
"The continuation and escalation of either or both conflicts would raise the specter of dual and compounding shocks to commodity markets that could test the resilience of the already fragile global economy," the analysts said.
As to how much the new chaos has impacted gold prices, the World Bank noted that the yellow metal had ended the third quarter with a 3% loss as prices fell to a seven-month low. Since early October, gold prices have rallied more than 8%.
Before Hamas' brutal surprise attack on Oct. 7 that sparked the war, gold prices were weighed down by the Federal Reserve's aggressive monetary policy as it looks to maintain its restrictive monetary policy for the foreseeable future. The U.S. central bank's hawkish stance has driven the U.S. dollar to nearly a one-year high and bond yields to a 16-year near 5%.
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"The recent divergence between gold prices and the yields on 10-year Treasury Inflation Protected Securities (TIPS) suggests that geopolitical risks and economic uncertainty have outweighed the effect of high interest rates on the carrying cost of holding gold," the analysts said.
It's not just gold that the World Bank is bullish on. The institution also sees healthy silver prices through 2024.
"Silver prices are expected to increase by 8 percent in 2023, remain firm in 2024, and fall in 2025 as inflation and recession fears fade and economic recovery ensues, albeit with a reduction in safe-haven demand," the analysts said. "Prices have remained resilient on relatively strong investment demand. Industrial demand for silver continues to be supported by expanding demand related to vehicle electrification, solar photovoltaic products, and electronics components—industrial activity accounts for almost half of consumption."