Market Views: Will gold prices keep hitting record highs?

Gold has been reaching new highs lately, driven by the market's anticipation of a potentially dovish shift in Federal Reserve policy. Which direction is the precious metal heading in the next few months? Experts give their takes.
Market Views: Will gold prices keep hitting record highs?

After Wednesday's US Federal Reserve meeting raised dovish market expectations, gold hit a new record, surpassing $2,200 per ounce during the Asia trading hours.

The precious metal has been setting record highs lately, amid several factors including market expectations for rate cuts in the US.

Lower interest rates are traditionally a boon for gold. Other factors that affect gold prices include geopolitical tensions, the US dollar trend, and central bank demand.

Gold prices have climbed steadily this year, gaining approximately 6.6% year-to-date. Since late November, the price has largely held above $2,000 per ounce. It began to shoot up at the end of February and kept making fresh records this month.

However, there is ongoing market debate about the timing of the initial rate cut, the number of cuts this year, and whether a soft landing is really in sight.

The Fed’s decision on Wednesday to maintain three rate cuts this year was a close call, with nine out of 19 voting members indicating two rate cuts or less in 2024.

We collected views on where gold price is heading in the next few months, its correlation with the Fed policy, and other key factors that may affect its outlook.

The following responses have been edited for clarity and brevity.

Fan Shaokai, global head of central banks
World Gold Council

Fan Shaokai

The future course of the gold market can be viewed from two different lenses – financial conditions that will affect the price in the short term, and gold demand trends that will affect the price in the long term.

With looser monetary policy already the consensus view, this outcome is likely reflected in the current price.

Whether or not the Fed can engineer a soft landing of the US economy is a more difficult question to decipher.

The likelihood of achieving a soft landing is questionable and in a hard landing scenario, which would prompt more drastic action by the Fed, the gold price might break higher as both lower rates and higher uncertainty trigger a rotation into gold.

Robust gold demand will continue to support the market in the long term. Central banks continue to buy gold at an enormous pace, with 2022 and 2023 being the highest years on record of central bank gold purchases.

We expect central banks to continue adding gold to their reserves as the global geopolitical picture remains tense and uncertain.

Strong retail gold investment demand in markets like China, where risks have risen and other asset classes have underperformed, will also continue to support the gold market.

Alex Chiu, senior strategist, ETF business
Value Partners

Alex Chiu

We remain constructive on gold, given the support from both technical and fundamentals.

Technically, gold prices have seen higher highs and higher lows over the past quarters, which is typically viewed as a bullish signal. Better still, the precious metal has broken through and stayed above the strong resistance of $2000 and is now sitting at an all-time high. 

As such, the strong technical should continue to sustain gold price momentum, and we believe any near-term weakness could present a good entry point for investors.

Fundamentally, there are also several factors that are positive for gold prices.

First, expectations of monetary easing – not just the US Fed but also other global central banks – as a result of moderating inflation is a key driver for stronger gold prices.

Second, geopolitical uncertainties stemming from several elections worldwide this year will likely increase the demand for gold as a safe-haven asset in the near term.

Additionally, in the longer term, the structural trend of central banks increasing their gold purchases to diversify their reserves is expected to continue, fuelled by the potential risk of purchasing power erosion of US dollar assets due to the persistent rise in the US fiscal deficit.

Daniel March, investment director
Jupiter Asset Management

Daniel March

Gold is always forward looking and as such has already digested a lower outlook for rates in 2024.

Markets are increasingly anticipating a supportive monetary policy stance from the Fed, which is why gold has risen to new highs in recent weeks.

It is however important to note that gold is only up 6.6% year-to-date, nothing compared to the moves seen elsewhere in equities, for example.

The breakout in gold above $2,150/oz is significant however, indicating that the outlook for 'forward’ dollars and potentially US Treasuries demand is beginning to weaken.

In terms of the fundamentals, the popular exchange traded funds (ETFs) have experienced outflows over the last three years, which is a good indication that positive flow and wider participation has yet to materialise.

In recent weeks, however, the popular physical gold ETFs have begun to see inflows, suggesting that investor sentiment could be about to turn in favour of the monetary metals. It is worth noting that Western participation is usually seen during a sustained move higher, so we are watching this investor subset with interest.

Of the two monetary metals, silver remains the more undervalued (more than 50% from its all-time high), while gold is making new highs against all fiat currencies.

Silver, however, has the more compelling supply and demand story, having been in structural deficit for the last three years, which will remain in place looking forward.

Silver imports into India reached a record 70 million ounces last month, an unsustainable number. For context that’s about 8% of annual global mine supply, in one month, to one country.

Robin Tsui, APAC gold strategist, SPDR ETFs
State Street Global Advisors

Robin Tsui

At the start of the year, markets were fully pricing in rate cuts to occur in May 2024, but markets now only expect an 8% chance for them to occur in May.

Other than rate cut expectations, recent US dollar weakness as well as a declining US 10-year Treasury real yield have supported the rally.

The recent strong price move has also been helped by a spike in gold futures, with the COMEX’s managed money net gold positions currently at the highest level in two years.

Other fundamental factors including strong Chinese demand, continued robust central bank buying and an increasing need to hedge against lofty valuations in the US stock market and geopolitical risks have supported gold hitting all-time highs.

Since 2008, gold has performed quite strong during months when the Fed funds rate is cut and given the anticipated monetary policy shift by the Fed in the second half, gold may continue to strengthen in the near term.

Gold is trading within our base case between $1,950/oz and $2,200/oz and we anticipate gold to test our bull base scenario between $2,200/oz and $2,400/oz once the Fed adopts a more dovish monetary policy stance in H2. 

Marc Franklin, senior portfolio manager, asset allocation, Asia
Manulife Investment Management

Marc Franklin

The sense of easier monetary policy and therefore financial conditions to come, combined with already loose fiscal policy, incentivised investors to allocate to precious metals as a proxy for easier financial conditions and potentially a renewed upwards pulse on inflation to come.

Meanwhile, a deepening and potential broadening of the conflict between Russia and Ukraine; maritime tensions in the Red Sea with the targeting of commercial shipping by the Houthis, and South China Sea and Taiwan Strait provocations involving China, the Philippines and Taiwan have all led to a perception that the risk of war and instability has dramatically risen.

In these cases, investors often seek safe haven assets such as gold.

Gold also serves as a means to gain access to a tight supply of US dollar.

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