What is the catalyst that drives gold prices to all-time records?

World gold prices set a new all-time record on December 4, in the context of investors expecting the US Federal Reserve (Fed) to soon cut interest rates, a weakening USD and geopolitical tensions. politics continues. Many experts believe that there is a basis for gold prices to continue to set more records in 2024.

During Monday’s trading session, spot gold price at one point reached 2,135 USD/oz. In recent sessions, gold prices have continuously set new records, far exceeding the old record of 2,072 USD/oz set in August 2020.

FACTORS THAT DRIVE GOLD PRICES TO INCREASE

According to analysts, the most important catalyst for gold prices to increase rapidly is the increasing confidence among investors that the Fed has successfully curbed inflation through 11 interest rate hikes since March 2022 for a total of an increase of 5.25 percentage points. Based on this belief, the market expects the Fed to move to cut interest rates as early as March 2024.

Gold is a non-interest-bearing asset, so a falling interest rate environment or the expectation of falling interest rates is beneficial for gold prices.

In addition, when interest rates increase, the yield on US Treasury bonds also increases, attracting investors to shift capital away from gold. On the contrary, when interest rates decrease or there is an expectation of a decrease in interest rates, US Treasury bond yields also decrease, causing the relative attractiveness of gold to increase. On December 4, the 10-year US Treasury bond yield fell below the 4.3% mark, from a 16-year peak of over 5% recorded in late October and early November.

Besides, gold is priced in USD, so the devaluation of the greenback is a beneficial factor for gold prices. Currently, expectations of the Fed reducing interest rates are putting strong devaluation pressure on the USD, and gold prices are benefiting. The Dollar Index, which measures the strength of the USD against a basket of six other major currencies, has fallen more than 1.8% in the past month.

“Expectations about the end of the Fed’s monetary policy tightening cycle are being reflected in the market, pushing long-term US Treasury bond yields down. This creates a favorable environment for gold as a non-interest-bearing asset,” researcher Daria Efanova of trading platform Sucden Financial commented to CNN news agency.

World Gold Council (WGC) strategist John Reade said investors are predicting the Fed will cut interest rates multiple times next year, and that could push gold prices past the newly set record. .

In addition to the factors mentioned above, gold prices are also being supported by another factor: a deep sense of insecurity on a global scale. CEO Jamie Dimon of America’s largest bank once said that right now could be the most dangerous period the world has experienced in decades. In fact, this increase in gold prices began when the war in the Gaza Strip between Israel and the Palestinian Hamas force suddenly broke out in early October.

Investors often view precious metals as a “haven” because they are a tangible and limited asset, so in theory they will retain their value. If calculated from the beginning of the year until now, gold prices have increased more than 10%.

“The geopolitical risk environment seems to have changed,” Mr. Reade said. “Not only because of the Russia-Ukraine war, not only because of the war in Gaza, but also because of trade tensions between the US and China and other issues as well.”

GOLD PRICE OUTLOOK IN 2024

A more fragmented world also causes central banks of emerging economies to aggressively buy gold – Mr. Reade emphasized. In addition, he said that these countries are also worried about seeing Russia’s foreign exchange reserves frozen by the West, so they increase their holdings of gold – an asset they consider safer.

WGC data shows that central banks of emerging economies net purchased an average of 473 tons of gold per year during 2010-2021. But this year, this group bought a net of 1,100 tons of gold, of which the net purchase in the first three quarters of the year was 800 tons of gold. This strong pace of net gold buying “could continue for years, if not decades,” Mr. Reade said.

Regarding the gold price outlook in 2024, analysts believe that the possibility of price increase is large.

“Expectations of a depreciating dollar and lower interest rates in 2024 are the main price drivers for gold,” UOB bank chief strategist Heng Koon How told CNBC. Mr. Heng forecasts that gold prices could reach 2,200 USD/oz next year.

Similarly, chief strategist Nicky Shiels of MKS PAMP said that the current level of leverage in the gold market is much less than in 2011, so gold prices can easily surpass the 2,100 USD/oz mark and bring The 2,200 USD/oz mark is in sight.

TD Securities chief strategist Bart Melek forecasts an average gold price of $2,100/oz in the second half of 2024, as central bank buying and the Fed moves to loosen monetary policy. play the role of key catalysts.

“We believe that the main factors supporting gold prices in 2024 will be the Fed’s interest rate cuts, a weak USD and rising geopolitical tensions,” Fitch Solutions’ BMI research department said in a report. recent report.

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