Gold prices surged to a new record high last month, driven by geopolitical tensions. Although the bullion is unlikely to dip significantly, HSBC economists are skeptical it can remain above the $2,000 mark.
HSBC Outlines Potential Headwinds for Gold Prices in 2024
In December, spot prices reached a new all-time high, exceeding $2,000 per ounce, and have sustained this level into the new year. Despite the bullish start, HSBC economists are cautious about the metal’s ability to stay above this threshold in the upcoming months.
Notably, the experts believe that the current gold price levels may be “overstretched,” adding that the bullion could be facing declines in the near term amid an “absence of notable economic and political news.”
“The high price of Gold is also limiting demand for jewelry, coins, and bars, mainly in price-sensitive emerging markets, but also in less price-sensitive Western markets.”
– economists wrote in their January 11 report.
Moreover, HSBC warned that a failure by the Federal Reserve to meet market expectations on rate cuts could also weigh on the yellow metal. The market anticipates a substantial 138 basis points in rate cuts, exceeding the Fed’s dot plot projections and HSBC economists’ forecast of a more conservative 75 basis points reduction.
If these expected cuts do not materialize to the extent anticipated, there is potential for a gold price reversal.
“Gold is historically sensitive to US real rates, and while there has been a significant disconnect in this relationship, we think that positive real rates could be a headwind for XAU/USD this year.”
Furthermore, investors will closely watch the as another factor affecting gold prices, given the historically inverse relationship between the two assets. A rebound in the greenback could intensify the downward pressure on bullion, while conversely, a weaker dollar may bolster gold prices.
What Fueled Gold’s Journey to ATH in 2023?
HSBC’s fresh report on gold’s outlook comes just weeks after the safe-haven asset printed an all-time high of $2,135 per ounce.
Its rally last year was fueled by a notable weakness in the US dollar, geopolitical tensions in the Middle East and other regions, and growing convictions that the Federal Reserve will begin cutting rates in 2024.
The bullion retreated from the recent highs, though it remains up more than 8.2% in the past year. Apart from numerous potential headwinds, several factors may sustain the metal’s price and limit the downside this year, including unexpected escalation in geopolitical conflicts and trade risks.
***
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
This article was originally published on The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.