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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