(Kitco News) – The gold market continues to hold resistance below $2,050 an ounce and despite its slow start to the year, one market strategist said that he still sees solid potential for gold to hit new record highs this year.
Ricardo Evangelista, Senior Analyst at ActivTrades, noted that the Federal Reserve’s monetary policy stance is currently the most significant driver for gold prices. He said that even the precious metal’s safe-haven allure has been unable to withstand shifting market expectations around the central bank’s monetary policy.
“Despite the escalating tension in the Middle East, which reached a new high over the weekend after the attack by Iran-linked militias on a US base in Jordan, the haven gold recorded only modest gains. This scenario shows that, even against a backdrop of geopolitical turbulence, which typically sees gold prices going up, the markets are barely budging, focusing instead on the upcoming Fed meeting and rate decision and January’s non-farm payrolls, all due later this week,” Evangelista said in a note Monday.
In a comment to Kitco News, Evangelista said that he sees gold prices hitting a high of around $2,200 an ounce with an average annual price of $2,100 an ounce.
Investors started the new year looking for the Federal Reserve to aggressively ease interest rates with the first-rate cut expected in March. However, these predictions have been significantly pared back as economic data shows robust activity, highlighting a threat that inflation pressures could accelerate quickly. The CME FedWatch Tool now shows markets see a less than 50% chance of a rate cut in March.
Although the timing of the Federal Reserve’s new easing cycle remains a question mark, Evangelista said that, eventually, easing should provide some bullish momentum for the precious metal. At the same time, gold remains an important safe-haven asset as geopolitical tensions remain elevated.
“In 2024, gold is poised for further gains, driven by expectations of interest rate cuts, geopolitical uncertainties, and global recession fears, maintaining its status as a safe-haven asset with the potential for further record highs,” he said in his 2024 outlook.
While markets are starting to price out a March rate cut, there are still solid expectations for the easing cycle to start in May. Evangelista noted that gold could also find bullish momentum from a weaker U.S. dollar as the central bank starts easing rates. He pointed out that despite shifting expectations, markets still see the Fed cutting interest rates by at least 100 basis points this year.
However, he added that investors shouldn’t discount the greenback too much in a world of economic uncertainty.
He pointed out that currency markets are seeing a bit of “U.S. dollar déjà vu.”
“This time last year, most analysts predicted that 2023 would see an economic slowdown in the US (ranging from a mild contraction to a more serious recession, depending on who you asked). Fast forward 12 months and predictions are very much the same for 2024,” he said. “Recent history has shown that predicting the performance of the greenback is not an easy task. So, even with all the Planets aligned, it will take courage to call out the fall of the king dollar in 2024.”
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