(Kitco News) – Gold prices will continue to rise before peaking in Q4, supported by global conflicts, election uncertainties, and central bank buying, but the Federal Reserve will unlock the next level of the bull market, according to Ewa Manthey, Commodities Strategist at ING.
Manthey wrote that while spot gold’s 13% gain in 2024 has been supported by geopolitical tensions and China’s struggling economy, the Fed was still the main source of momentum for the precious metal.
“The key driver of the outlook for gold prices for the past year has been Federal Reserve policy, with rising optimism surrounding the central bank inching closer to the much-anticipated pivot fuelling the precious metal’s rally,” she said. “The Fed is expected to cut this year, but has said that it needs to see more evidence of inflation easing first. The market will be closely watching US March inflation data scheduled for release later this week.”
“If the Fed continues its cautious approach to easing, gold prices risk a pullback,” Manthey warned. “We expect gold prices to remain volatile in the coming months as the market reacts to macro drivers, tracking geopolitical events and Fed rate policy.”
Manthey noted that investors have finally taken an interest in the yellow metal, with the latest Comex data showing a significant rise in long positions. “Looking further ahead, we believe we will see more long positions being added given higher gold prices as US interest rates are expected to fall,” she said.
Central banks have also provided steady support for gold prices, with the latest data from the World Gold Council showing a net 19 tonnes of sovereign purchases, and China remaining a net buyer for the 17th straight month in March. “Gold tends to become more attractive in times of instability, when investors pile into safe-haven assets as a hedge against the economic climate, geopolitical tensions, or inflation,” she said. “We believe this is likely to continue for the rest of this year.”
ETFs remain an area of continued weakness, as they “remain unaligned with price action,” Manthey noted. “Gold ETF holdings have been in decline for much of 2024, while spot gold prices are up around 13%. There is plenty of room for investors to buy the gold market, but maybe we need to wait for the Fed to actually start cutting rates before investors jump fully into the market.”
Manthey said that ING still predicts the current gold rally will continue through the rest of 2024. “We expect gold prices to trade higher this year as safe-haven demand continues to be supportive amid geopolitical uncertainty with the ongoing wars and the upcoming US election,” she said. “We have revised our 2024 gold forecast higher, and we now expect prices to peak in the fourth quarter, averaging $2,300/oz.”
“We expect an average of $2,206/oz in 2024 on the assumption that the Fed starts cutting rates in the second half of the year, the dollar and yields weaken, and geopolitical risks continue to support,” Manthey concluded. “Downside risks revolve around US monetary policy and dollar strength. The higher-for-longer narrative could see a stronger dollar for longer and weaker gold prices.”
