A jewelry quarter gold dealer poses with three 1kg gold bullion bars on December 13, 2023 in Birmingham, England. Photo by Christopher Furlong/Getty Images
Gold may not underpin the value of currencies or lure in the average investor like it once did, but the shiny yellow metal always has its supporters—and the goldbugs are flying again. Gold prices pushed past their record high to around $2,200 per troy ounce this week after the Federal Reserve brushed off multiple hotter-than-expected inflation reports and reaffirmed its outlook for three interest rate cuts this year.
David Morrison, senior market analyst at TradeStation, wrote in a Thursday note that precious metal prices “flew higher” due to the “dovish surprise” at Fed’s press conference on Wednesday. Many investors feared prior to the announcement that Fed Chair Jerome Powell would warn interest rates would need to stay higher for longer after the January and February inflation reports trended in the wrong direction. But instead, Powell said that the data hasn’t “really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road towards 2%.”
Morrison noted that in response to this news, the U.S. dollar and Treasury yields both dropped sharply, lifting commodity prices, “while the prospect of lower borrowing costs boosted the attractiveness of holding gold as an asset.”
Gold prices have surged 10% since mid-February and 20% since their October lows, but the move has been driven by more than the prospect of lower interest rates. Central banks’ precious metal buying spree and rising geopolitical risks amid the Red Sea crisis and U.S.-China tensions have also bolstered the safe haven asset.
Central banks bought a record 2,100 tons of gold in 2022 and 2023, according to Bank of America data, reducing global supply substantially and boosting prices.
“This is all good news for investors in precious metals. But they should be prepared for a profit-taking pullback which may take the gloss off the latest move higher,” Morrison warned. “Then we’ll see if a shake-out of the weaker hands sets the stage for a bigger rally, or if we’ve already seen the top this year.”
The bulls’ take
While Morrison fears gold prices may have reached their peak for this year, others are more bullish. Bank of America analysts, led by Jared Woodard, the head of the Research Investment Committee, argued in a Thursday note that gold has more room to run, and could even hit their technical strategist’s lofty price target.
“Gold is still one of our favorite trades for 2024,” they wrote. “More investors could enter the market if yields fall and could help push the gold price to Paul Ciana’s potential long-term upside [target] around $2500-$2600.”
Woodward and his team mentioned central banks’ “unprecedented” gold buying spree; the potential for more “mom & pop investors” to buy in and drive prices higher; and gold’s ability to act as a hedge to stock market risk as their three key reasons for owning gold or related gold ETFs.
Similarly, Ned Davis Research’s chief global investment strategist Tim Hayes said in a recent note that gold prices will continue to rise according to his model. He also noted that investor sentiment toward the precious metal, which tends to surge when a correction is coming, hasn’t spiked like it has for stocks—and history supports a bullish view on gold as well.
“Currently up 34% over the 417 days since its cyclical low in 2022, gold will have substantially more upside if the bull’s gain reaches the median for a cyclical bull within a secular bull,” Hayes wrote. “The chances are currently supported by reasonable sentiment, declining interest rates, and the weakening dollar, together with the bullish trend model readings.”