Gold has faced endless headwinds throughout 2023, and yet, we still have just under half of the year to go. Despite the high interest rates, the precious metal has managed to pull off an average year-to-date gain above 2.5% so far. While gold may be sitting around critical $1,900-per-ounce lines as the marketplace anticipates the next Fed meeting, analysts are predicting huge price jumps by early next year when rates begin settling.
Economists from ANZ Bank recently outlined gold price forecasts for the upcoming year, including two potential economic shifts that may occur. Each shift would influence gold pricing in different ways.
To start, the economists outlined the “goldilocks” scenario where a soft economic landing occurs following the end of the rate-hiking cycle. With a healthy economy, fewer investors would seek safe-haven assets, so gold’s investor demand levels would likely settle.
“The first shift is the ‘Goldilocks’ scenario. The U.S. economy remains resilient, as evidenced by strong economic data. As a result, the market has pushed out the possibility of a hard landing. This diminishes safe haven flows for Gold,” the economists explained.
In the second scenario, the economists see interest rates remaining high for longer than the marketplace currently expects. Gold has an inverse relationship with interest rates, meaning high rates typically pull prices down. If the Federal Reserve calls for another hike or keeps rates high for an extended period, gold would face more headwinds for quite some time.
“The second economic shift is the higher-for-longer interest rate regime. Our baseline forecast is rates are at their peak, but we do not rule out the possibility of one more rate hike, depending on the data. Either way, real rates are likely to lift amid easing inflation. As a non-yielding asset, Gold inversely tracks U.S. real interest rates,” the economists explained.
Both of ANZ Bank’s predictions outline headwinds for gold in the near future, yet the economists feel positive about the precious metal’s mid and long-term performance. Whether it’s high interest rates or a healthy economy, the rebounds will only be short-lived on gold prices, according to ANZ Bank’s predictions.
“Overall, we see short-term headwinds to the Gold price. However, our medium-and long-term view on Gold remains positive. We shift our price target of $2,100 to the end of Q1 2024,” the forecast concluded.
ANZ Bank is not alone with its $2,100-per-ounce forecast for gold. Heng Koon How, UOB’s head of markets strategy, global economics, and markets research, also forecasts gold prices of around $2,100 per ounce, though closer to 2024’s second quarter.
“Key driver in our positive outlook for gold is anticipated peak in Fed rate hiking cycle as well as upcoming topping out of U.S. dollar strength,” How noted when explaining his reasoning behind the prediction. “We also see a return of physical gold jewelry demand from China and India as both economies stabilize and retail spending returns.”
According to analysts at Citi, China’s jewelry demand for gold is forecasted to reach its highest level this year since 2015. Citi’s forecast for demand rates this year is 700 tons, which would be a year-on-year gain of 22%.
The predictions for gold’s performance in 2024 don’t cap at $2,100 per ounce, though. Numerous analysts are forecasting figures as high as $2,500 once interest rates begin dropping.
“My target is $2,500 by the end of 2024 … Much of this has to do with the fact that recessionary forces may take hold beginning later this year and gain steam in 2024,” the founder of Livermore Partners, David Neuhauser, explained. “2024 is when I see gold breaking out and reaching new highs and beyond.”
If gold reaches $2,500 next year, that would be a 26% increase compared to this year’s prices. In 2020, the precious metal achieved a 25.75% yearly gain. Considering the current state of the economy compared to that of 2020, a 26% annual gain for gold may not be out of the question.
Randy Smallwood, the CEO of Wheaton Precious Metals, agrees. “I’m pretty confident that within a couple of years, we will see $2,500 gold,” Smallwood stated, with the explanation that “any type of recessionary move would be positive for gold.”
Based on analyst predictions, a soft economic landing or prolonged interest rates could still allow gold to reach $2,100 per ounce by early 2024, while a hard landing or recession could push the precious metal toward those $2,500-per-ounce levels. As always, investors should consult their advisors before making any portfolio moves.