Commodity analysts at U.S. bank J.P. Morgan believe that the gold price will remain above the $2,000 per troy ounce mark in the new year 2024, and the precious metal will benefit from further interest rate cuts in 2024 and a return of investment demand.
On the other hand, precious metals are expected to lose some of the additional momentum from high inflation.
Analysts at the bank noted that the expectation of a change of course by the U.S. Federal Reserve has played an important role in the recent rally in gold prices, as it has in the last three interest rate cut cycles.
Gregory Shearer, head of base and precious metals strategy at J.P. Morgan Bank, added that potential price declines in the coming months should be viewed as a buying opportunity ahead of a breakout rally in mid-2024, when U.S. GDP growth slows.
J.P. Morgan Research now expects the Fed to cut rates by 125 basis points in the second half of 2024, 25 basis points more than the 2024 forecast released just last month, as the central bank seeks to avert a U.S. recession.
"Gold price forecasts are based on official Fed projections that core inflation will slow to 2.4% in 2024 and 2.2% in 2025, before returning to the 2% target in 2026," the analysts wrote in their review.
"We believe that during this period, the Fed's rate-cutting cycle and falling U.S. real yields will again drive gold's rally in 2024," Shearer said.
"Historically, the inverse relationship between gold and real yields has weakened during Fed rate hike cycles and then strengthened again when yields fall during the transition to a rate cut cycle."
Falling yields will drive the gold price to new nominal highs in the second half of 2024, averaging up to $2,175 per ounce in the fourth quarter, with a quarterly peak of $2,300 per ounce expected in the third quarter of 2025.
"We expect the recent outflows from exchange-traded funds to reverse and investor demand for gold to increase as retail investment inflows return, reinforcing price gains," Shearer says. "Continued active buying by central banks and increased physical demand amid lower prices are likely to continue to provide significant support for prices in the final phase of the Fed cycle."
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