Gold Price Outlook – February 2024

“Prices have lingered around $2,050 since the middle of December 2023. In fact, from 14 December 2023 through 8 February 2024 the closing price of gold has averaged $2,046.65. The nearly eight-week consolidation of gold prices around this level suggests that gold prices are likely to make a strong move in one direction or another in the near future. Gold prices could find themselves moving lower before moving higher. Lower demand from China following the Chinese Lunar New Year, reduced seasonal strength in prices, and an ongoing adjustment in market expectations of interest rate cuts are all factors that are expected to weigh on gold prices in the near future. There is initial support for prices at the $1,995 level, with a potential decline toward $1,975 also likely in the near future.

The biggest headwind to gold prices in the near future is expected to come from markets readjusting their expectations of the timing and the number of interest rate cuts the Fed will deliver this year. Markets have been excessively optimistic about rate cuts, something that started in 2023. Ongoing strength in the U.S. economy and some early signs that inflation could rise or at least be difficult to lower, going forward, is likely to keep the Fed cautious about reducing rates. In addition to a strong economy potentially pushing inflation higher, deglobalization, international political tensions, and global warming are all factors that risk driving inflation higher too.

Central banks around the world are expected to be cautious in reducing rates given the possibility of inflation resurfacing. The United States has the added advantage of a strong economy, which gives the Fed the flexibility to keep rates elevated. The European Central Bank (ECB) and Bank Of England (BOE) may be forced to lower rates sooner rather than later due to weakness in economic growth. The prospects of this relatively sooner reduction in interest rates compared to the U.S. could give the U.S. dollar a boost and act as a headwind to gold as well as other precious metals prices.

While interest rates may not be reduced as aggressively as the market is expecting in the United States, and most likely will be held stable for a longer period, there is a low likelihood that rates would be increased further. That said, if inflation starts to show signs of resurfacing and expectations of inflation begin to rise it would put downward pressure on real rates which would be a positive for gold prices.

Another headwind to gold prices in the near future is likely to come from the end of the Chinese Lunar New Year. There has been a lot of pent-up demand in China which has resulted in strong demand for gold in the country ahead of its 2024 New Year celebration. China’s exit from zero-covid in December 2022 resulted in a surge in covid cases in early 2023 dampening demand during the 2023 lunar New Year celebration held on 22 January 2023. The strength in gold demand in China this year is reflected in both the U.S. dollar price of gold as well as the high premium between the Shanghai Gold Exchange (SGE) price and London Bullion Market Association (LBMA) price.”