Gold prices are expected to rise from the current level this year because of rate cuts and geopolitical tensions, while silver is poised to potentially outperform the yellow metal, according to a UBS analyst.
“We are expecting gold to be pushed higher by a Fed easing. Also, this comes with a weaker dollar,” UBS precious metals strategist Joni Teves told CNBC during a Feb. 4 interview.
Ms. Teves expects gold to hit $2,200 per ounce by the end of 2024. Spot gold was trading at about $2,054 as of 3:39 p.m. EST on Feb. 5. As such, his forecast implies a nearly 9 percent increase.
“We do think investors will start to build allocations to gold in an environment where there is a lot of macro uncertainty [and] geopolitical risks,” he said.
Gold prices tend to be inversely related to Federal Reserve interest rates. As rates rise, gold prices usually fall as investments such as bonds become more attractive due to higher yield, leading to low interest in the yellow metal. Conversely, when rates fall, bonds become cheaper, which makes gold investment attractive.
As rates go lower, it weakens the U.S. dollar as well, making gold purchases cheaper for global investors, thus driving up demand.
Geopolitical tensions have also spiked since Hamas attacked Israel in October 2023 and triggered a conflict in the Middle East. Investors typically flock to gold in times of economic uncertainty. Ms. Teves is optimistic about silver as well, saying that the metal could “really, really shine.”
“In a scenario where the Fed is easing, we think silver can do really well,“ he said. ”It tends to outperform a move in gold. ... Silver has been underperforming gold quite a lot. So there is a lot of catching up to do and I think the move could be quite dramatic.”
Ms. Teves isn’t the only expert expecting higher gold prices this year. JPMorgan estimates gold prices to hit $2,175 in the fourth quarter of 2024 and peak at $2,300 in the third quarter of next year.
“We think over this period, the Fed’s cutting cycle and falling U.S. real yields will once again become the mono-driver behind gold’s breakout rally later in 2024,” said Gregory Shearer, head of base and precious metals strategy at JPMorgan.
“Gold’s inverse relationship to real yields has historically been weaker over Fed-hiking cycles, before strengthening again as yields fall over a transition into a cutting cycle. Across all metals, we have the highest conviction on a bullish medium-term forecast for both gold and silver over the course of 2024 and into the first half of 2025.”
Downside Risks
While many experts are predicting a bullish tendency for gold this year, such projections typically assume that the Fed will lower rates this year. However, if rates aren’t eased significantly, gold prices may fail to accelerate much from current levels.Following a recent policy meeting, Fed Chair Jerome Powell declined to say whether there would be a rate cut in March as many investors have hoped. Instead, he said that inflation was “still too high” and that “ongoing progress in bringing it down is not assured.”
The agency kept the rates unchanged at a range of 5.25 percent to 5.50 percent. The Fed chair said it wouldn’t be appropriate to cut rates until there’s “greater confidence” that inflation is moving toward the central bank’s target rate of 2 percent. In December 2023, inflation came in at 3.4 percent, well above the 2 percent rate.
Mr. Powell said rate cuts will only come when the Fed is assured that inflation will continue declining from a level it deems as “elevated.”
During an interview with CBS, Matt Willer, a managing director and partner at Phoenix Capital Group, said, “A fool’s errand is predicting markets, even more so with gold. ... However, I expect a flat year with a tilt to the downside.”
While high inflation may push investors to park their money in gold, the rate of inflation is declining, he noted.
“There may be fewer people going long on commodities like gold as inflation further settles and stabilizes,” Mr. Willer said.
He dismissed the possibility of inflation jumping significantly and expects geopolitical and economic factors to largely be perceived as being under control. Such an environment will not be bullish for gold.
“All things considered, I expect a relatively flat year with increased volatility as we approach the election,“ Mr. Willer said. ”I expect a push and pull with international tension and uncertainty promoting bullish sentiments, offset by those who want to re-deploy capital into an asset class that may have more appreciation and upside given the current inflation levels.”
However, the World Gold Council suggested in a Jan. 10 commentary that higher inflation could end up boosting gold prices in the current scenario.
“Although we still view a material resurgence of inflation as a remote possibility, this scenario would likely be positive for gold, as it undermines monetary policy and risks an even harder landing further down the road,” the council stated.
