(Kitco News) - The investment case for gold heading into 2024 has never been stronger as many analysts are not just predicting new all-time highs but are wondering how high prices can actually get.
According to many analysts, the recent breakout high to $2,152 could be just the start; however, analysts are also cautioning investors that they still need to be patient as it will take some time for the market to regain its momentum for a new bullish uptrend.
Bank of America stands out as one of the most bullish banks as it sees gold prices pushing to $2,400 an ounce next year. However, Michael Widmer, the bank’s commodity strategist said that he expects gold prices to push significantly higher as investors, sidelined through much of 2023, jump back into the market.
However, in BofA’s 2024 webinar, Widmer said that he doesn’t expect investment demand to pick up until the second half of the year. He added that the market will need a spark to ignite a new rally and that will come when the Federal Reserve finally starts to cut interest rates.
“Investors are waiting for something tangible that they can see,” he said in the webinar.
Most analysts agree that the Federal Reserve’s monetary policy will dominate the precious metals market, but expectations are still well above what the Federal Reserve has signaled.
In its last meeting of 2023, the U.S. central bank signaled that it sees three rate cuts in 2024, which would put the Fed Funds rate in a range between 4.50% and 4.75%, while markets see interest rates falling below 4% by this time next year.
Markets see the first rate cut coming as early as March. In a recent interview with Kitco News, George Milling-Stanley said that it might be premature to expect a rate cut in the first quarter. He added that while rates will go down next year, the question of when will create some volatility in the marketplace and could keep prices capped in the early part of the new year.
Despite his near-term neutral outlook, Milling-Stanley said that he expects gold prices to hit record highs in 2024. He added that a more serious recession that forces the Federal Reserve to match market expectations could push prices to $2,400 an ounce.
“When gold finds its momentum, there is no telling how high prices can go,” he said. “There is a very good chance we will see all-time highs next year.”
Market analysts at Wells Fargo said that they will be paying attention to the real economy as it continues to react to the Federal Reserve’s restrictive monetary policy. The bank expects to see slower economic growth in the first half of the year, which will push gold prices to $2,100 an ounce.
However, in an interview with Kitco News, John LaForge, head of real asset strategy for Wells Fargo Investment Institute, said that his price target could just be the start for gold.
“We believe gold could add to its positive price momentum in 2024 as its recent headwinds appear poised to reverse and become tailwinds in 2024,” LaForge said in his 2024 outlook.
Not all analysts are as optimistic on gold, however.
Kristina Hooper, chief investment strategist at Invesco, said the economy is seeing a solid disinflation trend and as consumer prices rise at a slower pace than expected the Federal Reserve will have room to cut rates without impacting the economy.
She added that though growth will slow, she doesn’t see the threat of a broad-based recession. In this environment, Hooper said that she sees gold prices holding in their current range.
“While growth will be positive, we still expect it will be a bumpy ride and that should keep gold prices support around current levels,” she said.
Gold’s price action is more than just the Fed
Although the Federal Reserve’s monetary policies will be the driving force behind gold’s investment demand. Some analysts note that the precious metal continues to be well supported as central banks continue to buy gold and diversify away from the U.S. dollar.
At the start of 2023, the World Gold Council expected to see a relatively slow year for central bank purchases, but it now appears that official sector demand is on course to match if not exceed last year’s record levels.
In a recent interview with Kitco News, Joseph Cavatoni, North American market strategist at the WGC, said that central bank gold demand has completely transformed the marketplace and that trend will remain strong in 2024.
“The case for central bank demand for gold is higher heading into 2024 than it was at the start of 2023,” he said.
Commodity analysts at TD Securities wrote in their 2024 outlook that investors should keep an eye on Chinese demand in particular as the People’s Bank of China has plenty of room to increase its reserves.
“It should be noted that despite China’s recent aggressive buying, the 4% gold representation in its FX reserve of $3.115 trillion is still very low. PBoC’s reserve is much, much smaller than its geopolitical competitors,” the analysts said. “The US holds some 69% of its FX reserve in the form of gold, Germany 68%, the Russian Federation 25% and India 8%. If Beijing increased the yellow metal’s FX reserve to just 10%, it would be in the market to buy over an additional 3,000t.”
