Despite facing a restrictive monetary policy from the Federal Reserve, gold and silver have continued to surprise market observers. The week showcased the resilience of precious metals, echoing the trend established in 2023 that propelled prices to record highs.
Even with the Federal Reserve maintaining a high Fed Funds rate, gold has managed to hold critical support levels, consolidating within a broad-based uptrend. The recent clear message from the Federal Reserve indicated preparations for lower interest rates this year but emphasized no hurry. The unexpected strength of the U.S. economy, with a remarkable addition of 353,000 jobs in the last month and a 4.5% increase in wages, has tempered expectations for an imminent rate cut.
While equities surged to new all-time highs, April gold futures ended the week with nearly a 1% gain, testing resistance around $2,050 an ounce. The underlying strength in the gold market, evident in its ability to withstand various headwinds, is reflected in the World Gold Council’s year-end/fourth-quarter global trends report.
The report highlighted that 2023 witnessed record gold demand of 4,899 tonnes, primarily driven by central bank purchases and activity in over-the-counter markets. Despite a decline in demand to 4,448 tonnes when excluding opaque OTC markets, the gold market showcased resilience. Central banks fell short of the 2022 record by 45 tonnes but purchased 1,037 tonnes last year, nearly doubling the average of the last ten years.
Analysts, such as Nicky Shiels from MKS PAMP, emphasized that central bank purchases were 25 times larger than known investor outflows. The net total flows indicated a strong performance in gold prices, aligning with the 12.1% increase seen in 2023. Central banks’ diversification into gold is expected to persist, providing support for the precious metal.
Looking ahead, leading market analysts surveyed by the LBMA collective anticipate gold prices to reach new record highs this year, with an average price of $2,059 per ounce, reflecting a 6.1% gain from the previous year’s average. Despite a subdued start in January, the underlying factors and central bank demand suggest a positive trajectory for gold throughout the year.
