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Gold Price Forecast: Top Trends That Will Affect Gold in 2024

The gold price reached a fresh all-time high in 2023, buoyed by financial and geopolitical instability.

The yellow metal neared a new record in the first half of the year as the banking crisis took hold, and it reached that milestone in H2, pushed upward by the conflict in the Middle East. However, interest rate hikes from the US Federal Reserve helped make interest-bearing assets more attractive to investors, tempering the draw of the precious metal.

With uncertainty continuing at the end of the year, what are the factors that will affect gold in 2024?

Fed’s fight against inflation to stay in focus

The battle against inflation will be one of the critical stories affecting the price of gold in 2024.

The Fed held interest rates steady at 5.25 to 5.5 percent at its final meeting of the year, and the broad consensus is that the central bank is now finished hiking. However, that doesn’t mean it will reverse course right away — with the latest inflation data showing a 3.1 percent increase in the consumer price index year-on-year, the central bank remains well off its 2 percent target for inflation. The most recent dot plot, which shows where each Fed official thinks the federal funds rate is headed, points to at least three rate cuts in 2024, assuming each is 25 basis points.

Although gold has performed well in 2023’s higher-rate environment, it tends to fare better when rates are lower. For that reason, many market watchers believe gold will move higher when the Fed reverses course.

However, another key question is whether the Fed will be able to curb inflation without causing a recession. At the start of 2023, analysts were predicting a moderate to severe recession, but with the US economy continuing to show strength, opinions are split about about whether 2024 will bring a soft landing or a harsher outcome.

2023 also saw artificial intelligence stocks help drive broader interest in the equities market, a trend that is expected to continue into 2024. The Bank of America (NYSE:BAC) is forecasting that the S&P 500 (INDEXSP:.INX) will reach a record 5,000 basis points in 2024, while Goldman Sachs (NYSE:GS) predicted in mid-November that the index would hit 4,700 basis points by the end of 2024 — it was able to break through that point by mid-December.

Geopolitics and central bank buying to support gold

As mentioned, high interest rates aren’t usually good for gold. But the precious metal has bucked the trend in 2023, soaring to a new record high of more than US$2,150 per ounce in early December.

Current geopolitical factors are also impacting metal’s price, including Russia’s ongoing invasion of Ukraine and the conflict between Israel and Hamas. These factors have prompted individual investors to seek safe harbor in the yellow metal, and they’ve been joined by central banks, which are on track to set a record for annual gold purchases — as of the end of September, they had bought a combined 800 metric tons of gold.

“Central banks have indicated through our annual survey that their motivations for holding gold include the performance of the asset in times of crisis, its role as a long-term store of value and inflation hedge, its liquidity and how it is an effective portfolio diversifier and hedge against geopolitical risks,” Cavatoni said.

David Erfle, editor and founder of JuniorMinerJunky, also pointed to central bank buying as important for gold. He believes the metal has strong momentum thanks to this demand and other fundamentals. “A monthly/quarterly/yearly close above US$2,100 would trigger a strong advance in 2024 with an initial 13 year cup-and-handle breakout target of US$2,500, and Fibonacci measurements being US$2,460 and US$3,300,” he said in a November 26 email.

“2024 is the beginning of the next major leg up in precious metals,” he continued, speaking the day before gold broke US$2,100. “US$2,072 is the previous high, and we’ll get above that — we’ll get US$2,100, US$2,200, US$2,300. Once we get into that modality, I don’t know if we’ll see above US$3,000, it depends on what happens with the rest of the economy. It depends if they pause and start lowering interest rates. If they do that it will put a boost to gold.”

“I think the gold setup here is beautiful,” he said. “I’ve been very guarded on the price of gold — I’ve never talked new highs ever, I’ve never said US$2,500 this or US$5,000 that — (but) we are saying as a result of what happened October 7 that you are going to see a new all-time high in gold next year, which is new for us.”

Will gold stocks perform in 2024?

High gold prices have been a boon for producers. They’ve used the extra revenue generated from gold sales for a variety of purposes, such as dividends, investing more in exploration or merging with other companies. These kinds of initiatives can in turn help to drive company visibility and increase opportunities to gain new followers.

Even so, gold stocks haven’t been on many investors’ radar lately. Although the precious metal itself has reached new highs, equities have largely sat on the sidelines. Will 2024 bring a different story?

Many experts believe these circumstances have created an opportunity for investors to buy. “There are a lot of fantastic companies out there that have really good resources that are selling for a quarter to a fifth of what they would be selling for in … a normal market,” Brien Lundin, editor of Gold Newsletter, said during a November panel.

At the same time, Erfle, who focuses on juniors, still sees fundamental issues in the market.

He believes some of the recent mergers and acquisitions are undermining the industry and not unlocking full value for investors. As an example, he mentioned Calibre Mining’s (TSX:CXB,OTCQX:CXBMF) recently completed acquisition of Marathon Gold. “My main concern is the harm several recent ‘take-under’ deals have done to the junior sector,” he said. “We need to see more positive deals that enrich the shareholders of both companies.”

According to Erfle, broader economic forces have made it challenging for juniors to fund early stage projects. “My focus for the past year or so has been on lower-risk, later-stage juniors with access to capital,” he said.

Consider jurisdiction when choosing gold equities

Erfle also suggested that investors pay attention to jurisdiction when it comes to gold stocks.

“Most counties in Latin America rely on mining as a large contribution to their GDP, but those with far-left governments will remain challenging for Canadian miners. I have steered clear of most South American jurisdictions for this reason. However, after Argentina elected right-wing libertarian Javier Milei as its new president … I will be closely watching Canadian juniors de-risking high-margin projects in this hopefully now more favorable jurisdiction,” he said.

First Quantum Minerals’ (TSX:FM,OTC Pink:FQVLF) recent problems at its Cobre Panama copper mine drive home that point. On October 20, Panama’s government granted a 20 year mining permit for the Cobre Panama mining concession, with the option for a 20 year extension. In return, the company agreed to pay US$375 million per year to the government. News of the deal sparked widespread protests by an estimated 250,000 Panamanians who were concerned about the mine’s impact on the environment and water supply, and they successfully shut operations down at the mine for weeks. Ultimately, the country’s top court found the deal unconstitutional, and on November 28 President Laurentino Cortizo ordered the mine closed.

The problems with First Quantum are just the latest in Latin America, where protests, expropriation and violence have posed problems for the mining industry for years. In the Fraser Institute’s 2021 survey, Nicaragua, Panama and Venezuela consistently ranked among the bottom countries in the world for investment attractiveness. (All three countries were left out of the organization’s 2022 survey for not garnering enough responses).

While some companies are operating in these areas successfully, due diligence is key for market participants.

For its part, First Quantum has placed the Cobre Panama mine on care and maintenance for the time being and has focused its efforts on fast-tracking a new copper project in Zambia, where a shift in government from left-leaning to center-right has also brought a shift in policy to encourage mineral projects.

Investor takeaway

2024 is shaping up to be another year of uncertainty. Investors have been keen on gold as tensions in the Middle East near a boiling point and as the war between Russia and Ukraine continues, but high inflation and conflicting thoughts about where interest rates are headed are pulling expectations for gold in opposite directions.

This is creating challenges for gold companies as well. On one hand, their financials are strong as they reap the rewards of today’s higher gold price environment; on the other, they’re facing inflationary pressures and higher interest rates.

With all of that said, many gold market watchers see opportunities to get into a sector that has largely been overlooked in recent years. As always, it’s important for investors to do their due diligence and understand the risks, whether they go for the safe haven of physical gold or pursue higher returns in gold equities.

Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.

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