Gold could hit $2,400 in 2024 if Fed cuts rates earlier

Gold price remained on track to retest an all-time high, around the $2,079-2,080 zone set in May, despite a further dollar recovery acting as a headwind for the metal.

On Friday, the yellow metal hit $2,075 an ounce – extending its winning streak for an eighth consecutive day – after Federal Reserve officials shifted their tone, inching closer to the long-awaited “pivot” away from aggressive interest rate hikes to the first rate cut in early 2024.

According to metals strategists at Bank of America, steel will be the strongest trade in the first quarter of 2024, and base metals will rally during the second half of the year, but summer will be gold’s time to shine.

In their recently published Metals and Mining Outlook for 2024, the BofA analysts said that while the war in the Middle East has boosted gold in the near term, “the yellow metal ultimately remains a trade on rates, so once the Fed announces a decisive end to the hiking cycle, new buyers should come into the market.”

If the Fed cuts earlier, they believe gold could finish 2024 at $2,400 per ounce. “Gold prices have held up against the backdrop of sharply higher US rates in recent weeks,” they wrote.

In their 2024 gold outlook, commodity analysts at TD Securities said that they see gold prices averaging around $2,019 an ounce for the year. While TDS is bullish on gold ahead of the New Year, they are also warning investors that they need to be patient. The analysts see gold prices pushing to $2,100 by the second quarter of next year.

"With inflation still considerably above the Fed's two per cent target, the US central bank is unlikely to signal an imminent easing. As such, the yellow metal could well be range-bound without a sustained breakout toward our $2,100 target occurring for a quarter or so," the analysts said in the report.

Rania Gule, market analyst at XS.com, said the key factors that could undermine the rise of gold as a haven are the modest strength of the dollar, attempting to bounce back from its lowest level since August 11. Additionally, a tone of positive risk sentiment prevails in the markets overall.

“However, from my perspective, gold prices remain steady, moving in the positive price range for the fifth consecutive day, and appear poised for further gains as expectations lean towards the Federal Reserve concluding interest rate hikes. This anticipation has grown, particularly following the recent less hawkish statements made by several Federal Reserve officials, prompting the market to price in early possibilities of the US central bank starting to ease its monetary policy and reduce interest rates by March 2024,” said Gule.

Analysts said the US Federal Reserve’s potential interest rate cuts are significantly influencing gold’s market dynamics. On Wednesday, as the dollar lingered near a three-month low, marking its steepest monthly decline in a year, gold emerged as an increasingly attractive investment option. Lower interest rates decrease the holding cost for non-yielding bullion, boosting gold’s appeal.

Attention of the gold trade is now turning to forthcoming statements from Federal Reserve officials, especially Chair Jerome Powell. “A continuation of the Fed’s dovish approach could extend gold’s bullish trajectory. With the US, financial conditions at their most relaxed since early September and market predictions leaning towards considerable rate cuts in the coming year, gold futures are well-positioned for a bullish climb, offering a secure option amidst economic uncertainties and market volatility,” analysts said.

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