Page 20 - Bullion World Volume 4 Issue 1 January 2024
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Bullion World | Volume 4 | Issue 1 | January 2024


           Gold to keep Shining in 2024



           Ms Soni Kumari, Commodity Strategist, ANZ Research






                                                              and increase the opportunity cost of holding gold.
                                                              However, the inverse relationship varies during different
                                                              phases of the rate cycle. Historically, this negative
                                                              correlation strengthened during the easing phase and
                                                              weakened during tightening. In other words, the speed
                                                              at which the price of gold rises when rates are being cut
                                                              is greater than the speed at which it declines when rates
                                                              are being raised.


                                                              For a 100bp increase in the real US 10-year government
                                                              bond yield, the gold price tends to correct 5-10%,
                                                              other things unchanged. However, the latest US Fed
                                                              hiking cycle was unique, in that it was interspersed
                                                              with significant geopolitical events and stubborn global
                                                              inflation. It was not surprising that the gold price has
                                                              not fallen but gained a tad since March 2022, when the
                                                              US Fed started lifting its policy rate. This shows how
                          Ms Soni Kumari
                                                              unforeseen events can alter the influence of fundamental
                                                              economic drivers.
                                                              Therefore, gold will benefit from the monetary cycle’s
                  Lead: Monetary policy easing                transition of tightening to easing in 2024.
                          will support gold
                    Gold is set to remain a strong            Heightened economic, political, and geopolitical
                  performer in 2024, with the price           risks
                     expected to average above                Gold will also find support from economic, political, and
                 USD2,000 per ounce. Three factors            geopolitical uncertainties. The market is expecting a
                   are behind this view: a shift from         global growth slowdown and has factored this into the
                   monetary tightening to easing;             price. The risk of a ‘hard landing’ in the US, including the
                 heightened economic, political, and          possibility of a recession, remain on the market’s mind.
                   geopolitical risks; and continued          A few indicators, like the Federal Reserve Bank of New
                 strong purchasing by central banks.          York’s ‘Probability of Recession in 12 months ahead’, is
                    companies seeking reserves.               portending a 50% chance of a recession in 2024.

                                                              2024 will be an election year in the US, Europe, and
                                                              several Asian countries. This will keep political risks
           A shift from monetary tightening to easing         elevated. While US presidential elections have historically
           The US Federal Reserve’s decision to hold the federal   had a mixed impact on gold prices, they can spark a
           funds rate steady at its December meeting is being   bout of volatility depending on investor expectations of
           labelled as a ‘pivot.’ After hiking the policy rate by 525   the outcome and who wins.
           basis points in 18 months, the Fed is expected to embark
           on the rate cutting phase of the cycle at some point in   Based on past elections, gold tends to outperform when
           the second half of 2024.                           the Democrats win, as they are perceived to favour
                                                              greater public spending which at least theoretically is
           Gold’s price is inversely related to real rates, as higher   understood to feed inflation. Republicans, in contrast, are
           interest rates make fixed income assets more attractive   perceived to favour fiscal restraint. A tightly contested


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