Gold Price Outlook – March 2024

“Gold prices are at record high levels at the time of writing this report. CPM Group had forecast stronger gold prices for 2024 and still holds that opinion. That said, CPM Group’s view was that gold prices would move sideways to lower in the early part of this year before they rose more significantly. Instead, gold has moved sideways to higher during the first nine weeks of this year.

There are various political and economic reasons for gold prices to strengthen, but the markets seem to have run ahead of themselves, especially in pricing in gold price supportive macroeconomic factors. Economic data, at present, is providing mixed signals, with some data showing ongoing strength in employment and other sectors of the economy and strength in certain subsectors of inflation while other data are showing significant weakening of economic strength.

Market participants have a tendency to be bullish and are presently giving more weight to data that suggest a reduction in interest rates sooner than the Fed and economists think is likely. While the markets have tamed their expectations regarding the timing and extent of rate cuts, compared to those toward the end of 2023 and at the start of this year, their current expectation of four rate cuts starting in June 2024 may still prove too aggressive.

Gold prices could see further upside in coming weeks. Momentum could carry prices up another $50 or even $100 from present levels. That said, the market seems overbought at this time and a pullback toward $2,050 or even $1,995 cannot be ruled out. The trigger for such a move could come from ongoing strength in core services, ex-housing, in the U.S. February consumer price index (CPI) data which is scheduled for release on 12 March. The phasing out of a seasonally strong period for prices could add further downward pressure on prices.

Any weakness in gold prices should be treated as a buying opportunity. There are various political and economic factors that support gold in the medium term. The negative impact of monetary policy tightening should be felt more fully as 2024 progresses, helping to provide support to gold prices. Ongoing political issues both domestic as well as cross borders also should prevent any sharp declines in gold prices.

But if there is one thing that has become clear over the past several weeks it is that economic conditions could remain stronger for longer than expected. Some gold bug investors continue to expect dire economic and financial conditions that just are not likely to emerge in the next several quarters, even if a recession occurs. If the economy continues to strengthen from present levels, a stronger decline in gold prices cannot be ruled out.

If the Fed pushes for potentially raising rates at some point, it could push gold prices down toward $1,850 or even $1,825. An increase in interest rates is not CPM Group’s base case scenario at this time, and the Fed too believes that it has reached the peak in the current tightening cycle, but the resilience of the U.S. economy and its potential impact on services inflation suggests that the possibility of a rate hike should not be completely ruled out. The resultant weakness in gold prices should be used by markets as a buying opportunity.

Any further strengthening of economic conditions and the consequent tightening of monetary policy sets the stage for a recession in the future, which is supportive of gold prices. Additionally, there is a lot of political tensions and uncertainty both domestically as well as internationally, which should provide additional reasons for gold to be added to investor portfolios. Central banks also are expected to remain active buyers of gold for their reserves in 2024 and any weakness in prices is expected to be treated as a buying opportunity by these entities.”