(Kitco News) - The gold market's recent record high above $2,400 an ounce could represent a peak in the price; however, investors shouldn't expect to see much downside from current levels as the World Bank sees an 8% gain in the precious metal this year.
In its 2024 Commodity Market Outlook, the World Bank said that it sees gold prices averaging around $2,100 an ounce. The bullish outlook comes after gold prices saw a 4% rally in the first quarter of this year and have taken off since then.
The international financial institution that describes itself as the central bank for central banks added that it couldn't rule out higher gold prices this year.
"Heightened geopolitical uncertainty from an escalation of ongoing conflicts and wider geopolitical tensions could push gold prices higher than in the baseline," the analysts said in the report. "Safe-haven demand for gold is set to strengthen further in 2024 amid heightened geopolitical and policy uncertainty, partly related to the high number of upcoming elections worldwide."
Although the gold market has seen some solid selling pressure since hitting record highs above $2,400, its consolidation has been fairly shallow compared to the breakout rally during the last two months. June gold futures last traded at $2,346.60 an ounce, up 0.34% on the day.
The World Bank noted that geopolitical safe-haven demand will continue to help the gold market decouple from its strong inverse correlation from rising bond yields. In particular, U.S. bond yields have risen sharply since the start of the year as markets push back the timing of the Federal Reserve's easing cycle.
Rising inflation pressures are forcing the Federal Reserve to maintain its restrictive monetary policy longer than expected. The World Bank noted that commodity price inflation could increase this year, creating a challenging environment for all central banks.
"In all, disinflationary tailwinds from moderating commodity prices appear essentially over. The persistence of high commodity prices, relative to pre-pandemic levels, despite subdued global GDP growth, indicates several forces at play: geopolitical tensions are pushing up prices, investments related to the clean-energy transition are bolstering demand for metals, and China's rising industrial and infrastructure investment is partly offsetting weakness in its property sector," the analysts at the World Bank said.
The report said that risks to commodity prices are tilted to the upside.
"A conflict-driven rise in commodity prices could stoke stubbornly elevated global inflation, further delaying global monetary easing," the analysts said. "Food insecurity, which worsened markedly last year reflecting armed conflicts and elevated food prices, could also rise further."
Some analysts have noted that the environment described by the World Bank will be positive for the gold market. Although central banks may have to delay rate cuts this year, interest rates are still not expected to go higher. If inflation starts to rise, this would push real yields lower, creating a positive environment for gold.
At the same time, any rise in geopolitical uncertainty would drive further safe-haven demand for gold.
Although investors have largely ignored the precious metal, even as prices have hit record highs, the World Bank noted that gold remains well supported by growing central bank demand.
While the World Bank expects to see its commodity price index fall by 3% this year and 4% next year, prices are expected to remain well above historical averages.
"Although commodity prices are set to soften somewhat, they are expected to remain about 38 percent above 2015-19 average levels," the analysts said.
Along with its bullish stance on gold, the World Bank also looks for silver prices to rise this year; however, the white metal is still forecasted to underperform its yellow sister metal.
The World Bank sees silver prices averaging the year around $25 an ounce, a 7% increase from last year. The analysts said that the biggest risk for silver remains the health of the global economy.
"In 2024, demand for silver is expected to increase modestly, driven by its dual appeal as both a financial asset and an industrial commodity. Industrial demand, which accounts for almost half of global silver consumption, continues to be supported by expanding vehicle electrification and renewable energy infrastructure," the analysts said. "Weaker-than-expected industrial activity in major economies could dampen demand for silver and platinum."
The World Bank sees silver outperforming gold in 2025, with prices rising around 4% next year. Gold prices are expected to remain relatively flat in 2025.
