Four Forces Driving Gold Prices Higher in 2024

There are currently four major forces pushing gold prices higher – and likely to new record highs. And that forecast for gold prices is becoming more and more widely expressed. Major financial services firms such as Citigroup (NYSE: CITI) and JPMorgan (NYSE: JPM) are blowing the horn for substantially higher gold prices in 2024.

The four primary factors that are likely to drive gold prices up in the coming year are as follows:

• Economic and political uncertainty
• Central bank gold buying
• The US dollar declining as the world’s reserve currency
• Interest rate cuts by the Federal Reserve
  

Economic and Political Uncertainty

Gold has always been, and remains, a “safe haven asset”. It’s a tried and true investment asset that investors increase their holdings in during times of economic and/or political uncertainty. There’s no doubting that we are definitely in such uncertain times, with…

• The Federal Reserve trying to walk an economic tightrope balancing interest rates versus inflation or recession
• The recent growing conflict in the Middle East
• A political storm in the US that has many political pundits predicting unprecedented chaos in the aftermath of the coming Presidential election

Throughout the whole of world history, gold and silver have served as both instruments of currency-for-goods exchange and as reliable stores of value. One reason for this is the fact that, unlike fiat currencies, precious metals are limited natural resources. The printing press at the Federal Reserve may be able to spit out US dollars by the trillions, but the Earth cannot spit out an infinite supply of gold or silver.

Gold has nearly always been the most commonly used hedge investment against inflation. And while the pace of inflation has slowed in the past six months or so, the already high prices for goods and services still continue pushing higher – just at a somewhat slower pace. The Federal Reserve Bank is walking a precarious tightrope with its interest rate moves, trying to tamp down the rate of inflation while avoiding having the economy slide into a recession.

As for political uncertainty, it’s hard to argue anything except the fact that it’s at an all-time high. More than one political commentator is predicting that the 2024 Presidential election in the US will result in political chaos, regardless of which party wins. Countless lawsuits and protests over the election results are considered a virtual certainty. Internationally, the growing conflict in the Middle East and the continuing Russia-Ukraine war are keeping the worldwide political pot just under the level of boiling over.

Central Bank Gold Buying

The World Gold Council (WGC) reports record levels of gold buying by central banks all across the globe for both 2022 and 2023 – almost double the highest levels of central bank gold buys in the previous ten years. It further predicts an increasing uptrend in central bank gold purchases in 2024.

Central banks, just like private investors, are concerned about persistent inflation and other economic pressures that threaten the stability of fiat currencies. Their increased gold buying suggests that they, too, are stocking up on gold as a hedge against future economic uncertainty and volatility.

In particular, two of the BRICS countries, Russia and China, have been on a gold buying frenzy throughout 2023. China ramped up its purchases of gold virtually every month during the last half of the year. And that’s after, in June alone, its central bank bought nearly 25 tons of gold.China is not only increasing its gold holdings with central bank purchases. It’s also encouraging its citizens to buy more and more gold.

The sharp increase in gold purchases by the central banks of China and other BRICS nations leads us to the next point in favor of higher gold prices.
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China, Russia, and many other countries are just flat out sick and tired of the US heavy-handed attempt to rule over every economy in the world. This can easily be seen in the vast number of brokerage firms across the globe that no longer accept US residents as clients. Think of the fortune in investment dollars that they’re choosing to forego. Why? – Because they’re simply not willing to knuckle under to US financial market regulations.

Both China and Russia have grown weary and wary of the United States using asset seizures and tariffs as economic weapons. The result is “de-dollarization” – a concerted movement away from using the US dollar as the world’s reserve currency. Russia and China have both moved to diversify away from holding US dollars and from keeping money in US banks.

The push toward de-dollarization accelerated in 2023, particularly among the growing group of BRICS countries. Argentina, Bolivia, and Brazil have all dumped the US dollar for import buying – instead, beginning to use China’s currency. The move away from US dollar dominance has been especially noticeable in the all-important oil market. While the US dollar was once virtually the only currency used to purchase oil in the Middle East, many countries have shifted to using other currencies for buying oil.

JPMorgan reports that the US dollar has fallen by more than 50% in foreign exchange reserves worldwide.

Finally, rumours persist that either China – or the BRICS nations as a group – may look to create a new currency that is at least partially backed by gold. A move back toward the gold standard for currency values would almost certainly propel gold prices significantly higher.

Interest Rate Cuts by the Federal Reserve

An inverse relationship between interest rates and gold prices has long existed. Higher interest rates have, historically, tended to pressure gold prices to the downside, while lower interest rates are typically supportive of the price of gold moving higher.

After rising earlier in the year, gold and silver prices took a noticeable hit when the US Federal Reserve began sharply raising interest rates. However, both assets had recovered well by the end of 2023. Now, with market expectations of the Fed moving back in the direction of lowering interest rates, a bull market in precious metals appears to have relatively clear sailing, at least for the foreseeable future. Many market analysts see the $2,000 an ounce level now providing a solid floor for gold prices, and envision gold moving toward the $2,500 level or higher in 2024.

Four Forces Driving Gold Prices Higher in 2024 – Summary

It’s relatively easy to make a strong case for higher gold prices in 2024 – and rather difficult to make a convincing case for lower gold prices.

Any one of the four forces outlined here – central bank buying, economic and political uncertainty, de-dollarization, or interest rate cuts - present a solid argument for the price of gold and silver to continue moving higher in 2024. Taken all together, the case for higher gold prices becomes particularly compelling. Therefore, you may want to consider making the move that many other investors have already made toward increasing the percentage of your overall investment portfolio made up of gold and silver.

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Sources

https://www.bloomberg.com/news/articles/2024-01-31/gold-demand-to-hit-record-with-central-bank-buying-wgc-says

https://www.bloomberg.com/news/articles/2023-07-07/china-s-central-bank-boosts-gold-xauusd-reserves-for-eighth-month?srnd=markets-vp&embedded-checkout=true

https://www.jpmorgan.com/insights/global-research/currencies/de-dollarization

https://seekingalpha.com/article/4616066-why-china-buying-gold-hand-over-fist-so-are-we

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