A 13% Climb For ‘Struggling’ Gold, What Now in 2024?

Happy New Year to you all. This is our first update of 2024. What a way to start a year given gold ended 2023 with its first annual gain in three years, achieving around a 13% climb.

Depending on what you read and who you listen to there were three commonly cited reasons as to why gold really made 2023 shine. 

In no particular order:

• Geopolitical instability 
• Central bank gold purchases
• FOMC Rate Decisions

We’re only four days into the New Year and already two of those are making sure that they will also be key drivers for 2024 as well. We are of course talking about the release of the FOMC’s December minutes and the cinder kegs that keep appearing in the Middle East. 

Yesterday the minutes of the FOMC December meeting were released. Any expectations of a cut in rates starting in March were quickly dampened and realised to be unrealistic, with the minutes instead suggesting that rates will remain high ‘for some time’. 

With markets now having to amend their thinking to the likely chance that rate cuts won’t come until the second-half of the year many will be wondering how this will impact the price of gold. After all, traditional thinking tells us that gold should struggle under a period of rate hikes and tight monetary policy. If a 13% climb is gold ‘struggling’ then we’re looking forward to seeing how it does as interest rates come down. 

FOMC is losing its touch 

As ever, nothing happens in a vacuum. Gold does not only respond to the touch of the FOMC. If anything, it has been becoming desensitised to such announcements. Whilst we watch to see how it reacts to tomorrow’s non-farm payrolls data tomorrow, the reality is that in the medium to long-term gold takes its cue from a number of sources, and the weight of those sources on the gold price has been shifting in recent months. 

Chris Vermeulen on Gold: This Is A Super Cycle At Play

One of those sources is geopolitical tensions, which have already been impacting the price of gold this week. Whether it’s the bombing of a grave in Iran, Israel targeting Hamas members in Lebanon, or just the ongoing carpet bombing of Palestine, no-one is looking at the Middle East and waiting for it all to blow over. Gold has held strong this week, in part thanks to these very recent events.

The events ongoing today have had a long build up (well before October 7th) and gold has reacted accordingly. It has ultimately taken a steady climb, indicating markets’ increasing awareness that it really is a safe haven. Israel’s mission to obliterate Hamas is likely to engulf the Middle East, and draw in the rest of the world for some time to come. Stable times these are not. 

Central Banks Will Continue to Shop 

Luckily not all central banks are focusing on short-term issues such as monetary policy and funding wars. Instead, there are central banks who have been playing the long game as well, and have spent significant time adding gold to their reserves. This is the third factor that helped the gold price, in 2023. 

There is no indication that this will let up in 2024. Some central banks, such as Poland have made it very clear the quantities that they expect to buy up. Other banks, such as China, do not feel the need to make a song and dance about it. We fully expect to see further banks add to their gold reserves in the coming year as they begin to prepare for an increasingly fractious world. 

David Hunter                                                               

Later this week we will be speaking to David Hunter, of Contrarian Macroadvisors. We last spoke to him in 2022, when he made some punchy predictions about stock market performance. Send any questions you have for him to @GoldCore on the platform formerly known as Twitter.

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