Gold exhibited exceptional performance throughout 2023, surpassing expectations and outperforming various asset classes such as commodities, bonds, and many stock markets. The surge in gold prices, particularly in the last quarter, was driven by a growing preference for safe-haven assets amid heightened uncertainty.
The conflict between Israel and Hamas in October 2023 played a significant role in propelling gold prices to near-record highs, reaching $2,071 per ounce on December 1. Despite the easing of concerns about a broader conflict in the Middle East, gold maintained its strength, supported by a weaker U.S. dollar and declining interest rates.
In 2023, amidst the Federal Reserve’s decision to raise interest rates to their highest level in 22 years, the global economy proved resilient. The World Gold Council’s (WGC) Gold Outlook 2024 report anticipates a “soft landing” in the United States, where the Fed successfully curbs inflation without triggering a recession.
WGC outlines three possible global economic scenarios for 2024, with a soft economic decline characterized by slow but continuing growth being the most likely, according to the council. Geopolitical tensions and continued central bank buying are cited as factors that could provide additional support for gold.
Two pivotal events in 2023, the collapse of Silicon Valley Bank and the Hamas attack on Israel, influenced gold demand, contributing between 3 and 6 percent to the price of gold, as estimated by WGC.
Central bank acquisitions also played a crucial role in driving gold prices higher. In the third quarter of 2023, central banks acquired 800 metric tons of gold, marking a 14 percent increase compared to the same period in the previous year. WGC expects central bank purchases to persist in 2024, providing an additional boost to gold prices.
John Reade, chief market strategist at WGC, anticipates that gold prices will exhibit volatility in 2024, remaining within a specific range. The potential trajectory of the Federal Reserve’s policy, influenced by individual economic indicators, is expected to impact gold prices until the first interest rate cut occurs.
As major elections unfold globally in 2024, including those in the United States, the European Union, India, and Taiwan, investors may have an increased need for hedging portfolios, contributing to the continued demand for gold.
