**In 2023, it has been a big one, with year-to-date gains of more than 15% and two record highs, which is unexpected against the backdrop of the Fed's interest rate hikes. As a non-interest-bearing asset, it faces up to 5The US dollar interest rate of 5% remains strong, mainly driven by the huge demand for diversification.
According to the World ** Association, more than 70 percent of the central banks surveyed expect global ** reserves to increase in the next 12 months. Global central banks bought a record 1,136t of gold in 2022 and the trend will continue in 2023. Goldman Sachs recently raised its gold price targets for the next three, six and 12 months to $2,065, $2,125 and $2,175 per ounce.
After two years of consolidation after the pandemic, gold hit two all-time highs in 2023: once in May and once in December, when gold tried to shake off the key resistance level of $2,000, where it had been sold off several times. The Fed is currently expected to cut interest rates three times in 2024, and gold prices are already above this level. Given the favourable macro backdrop and a biased number of technical indicators, gold prices are expected to set new records in 2024. Fawad Razaqzada, a senior analyst at Forex.com Group, told reporters, "The targets we have set for gold in 2024 are $2,200 and $2,360." ”
A number of factors drove gold prices to record highs twice.
Over the past few years, high inflation has led to a sharp tightening of interest rate policy by central banks around the world. **After a large ** in the first few years of the epidemic, it was also powerless for a while. ** hampered by high interest rates leading to a rise in bond yields. The yield on the 10-year Treasury note rose from around zero to 5%, increasing the opportunity cost of holding zero-yield assets such as ** and **. This offset the strong increase in physical** demand for hedges against inflation for much of 2021 and 2022. But then things started to change.
The global disinflation process started slowly around mid-2022, with many central banks, including the Federal Reserve, peaking in interest rates by mid-2023. However, there is still a belief that interest rates will remain high for a long time, which prevented gold from breaking clean in May, when it briefly broke the record set in 2020. It then sharply** went from around $2,081 to an October low of $1,810.
But by the beginning of the fourth quarter of 2023, inflation and interest rates had peaked, and things became clearer. The tone of central banks began to change, from being super hawkish to less hawkish, and eventually becoming a bit ** by the end of the year. Global inflationary pressures continue to weaken. Investors expect interest rate cuts to start as early as the end of the first quarter of 2024. This gave another boost to gold prices, which rose about 18% from their October lows** to an all-time high of $2,146 in early December before retreating slightly. As of Dec. 29, Comex*** closed at 2,071 an ounce8 USD.
In other words, 2023 is underpinned by factors such as inflation hedging purposes and interest rate cut expectations. These factors will continue to affect in early 2024**. "Therefore, we expect 2024 to be a strong year," Razazada told reporters. ”
It is worth mentioning that it is denominated in US dollars, which means that it tends to be inversely related to the US dollar index. But in recent years, whenever the dollar index has appeared, it hasn't been much. "And in 2023, the dollar index**, but ** has moved disproportionately higher. If the near-term trend continues, even if the USD closes higher in 2024, it may only retreat slightly. This means that if 2024 is a bearish year for the dollar, it could shine even more. Razzada said.
The U.S. dollar has fallen sharply recently, with the U.S. dollar index approaching the 100 mark, hovering at 100 on December 28, 20235 nearby. Yang Aozheng, chief market analyst at FXTM, told reporters: "The situation of the dollar index falling below the wave has basically not changed. 18 levels. Looking ahead to the first quarter of 2024, although the market has expected a rate cut too early, inflation is still a fact, and the expectation of a rate cut will continue to be strong, which is not conducive to the dollar index and US Treasury yields, and the dollar index is just around the corner to fall below the 100 mark. ”
In his opinion, after falling below the 100 mark, the support below is at 99The level of 58, which is also the previous low in July 2023, may be evident on this support, but if it falls below 99 again58, the dollar index may fall further to the 97 98 range.
Global central bank buying will remain a key driver.
* A key driver is the extraordinary purchases of central banks, with geopolitical conflicts exacerbating the need for diversification rather than just USD assets. This partly explains why the US dollar has had less of an impact on ** over the past few years.
According to the World Association, excessive demand from central banks in 2023 has boosted performance by 10% or more. The group expects central bank purchases in 2024 to exceed expectations, if not at the same high levels as in the previous two years, with purchases of more than 450,500t** providing an additional boost to gold prices.
Juan Carlos Artigas, head of research at the World ** Association, said in an exclusive interview with the first financial reporter that there is still upward momentum, and more than seventy percent of the surveyed central banks expect that the world's ** reserves will increase in the next 12 months. Emerging markets are more likely to increase their reserves than developed markets, which are already at relatively high levels. "Asian countries such as China, India, Singapore and Bolivia in Latin America are the main buyers, in fact, all over the world. Factors such as interest rate levels, inflation concerns, geopolitical risks, ESG issues, and changes in the global economic landscape are the key issues that central banks consider first when allocating**. ”
Central bank allocation** is based on safety, liquidity and returns. Specifically, it is considered a safe asset and a store of value by central banks because it is more stable in the face of credit risk than other assets such as government bonds**With strong liquidity, the central bank can enter the market quickly without distortion**;In addition, although returns are not the main motivation for central banks to buy, the annualized compound rate of return of ** has been around 7% over the past few decades, providing investors with relatively decent returns, and the performance of ** is also good compared to **investment income, and the implied volatility per unit of income is much smaller.
In addition to central bank gold purchases, China is the world's largest consumer, followed by India and the United States. China's purchases tend to increase ahead of the Lunar New Year, with the 2024 Lunar New Year coming on February 10, a month before January, which would be one of the busiest periods for purchases.
The bullish trend for many years shows that it is suitable for dips. As a result, traders will be actively looking for opportunities after any significant moves. We have set targets of $2,200 and $2,360 for 2024. Razzada said.