What affects the price of gold?Can it still go up in 24 years?

In 2023, ** will perform well among a number of assets, with a cumulative increase of more than 15% throughout the year, and the most ** once broke through $2,100 an ounce, hitting a record high.

In 2024, the conflict between the Middle East and Russia and Ukraine has not stopped, and the market is betting that global central banks will cut interest rates aggressively this year, and the performance is still strong. As of press time, gold is still trading above $2,000 an ounce.

However, James Steel, chief analyst at HSBC, believesThere is a lot of uncertainty about the trend of gold prices this year, and there is a disconnect between the financial market's expectations for interest rate cuts in 2024 and the Fed's dot plot.

HSBC has set a spot** price target for 2024 and 2025$1947 ozwith$1835 oz, maintained$1600 ozThe long-term ** remains unchanged.

There are many variables that affect the price of gold, with US Treasury rates and the US dollar playing a decisive role.

**Does not generate income (interest) per se. As a result, gold prices tend to weaken when interest rate hike expectations form. Looking at the data of the past two years, gold prices rise when investors expect the Fed to tighten policy further** and rise when expectations change to Fed easing.

The U.S. dollar and gold prices are both central bank reserve assets, and there is a substitution effect between the two, ** a seesaw relationship, and when the dollar falls, the gold price rises, and vice versa.

In terms of U.S. Treasury yields, HSBC noted that gold prices have already taken the lead compared to the pace of rate cuts shown by the Fed's dot plot, and a slower-than-expected rate cut could hinder gold prices further**:

Over the past few months, there has been a disconnect between financial markets' expectations of a rate cut in 2024 and the Fed's dot plot. Market expectations for a rate cut in 2024 have been around 150 basis points, sometimes even higher, with a roughly 50% chance of the FOMC cutting rates for the first time in March.

The prospect of such a massive rate cut has led to a surge. In the final months of 2023, a number of Fed seniors** have repeatedly pushed back against this speculation, but markets have so far ignored the Fed's efforts to lower its rate cut expectations. The median of the Fed's dot plot implies a 75 basis point rate cut this year.

*A 150bp rate cut for 2024 has been priced. If the Fed doesn't cut rates as sharply or quickly as the market expects, then *** could gradually move lower. Much will depend on how the market will continue to assess monetary policy and the dollar going forward.

HSBC believes that the current trend in the real yield of the 10-year Treasury note is not in favour of **:

The real yield on the 10-year Treasury note fell into negative territory at the beginning of the century, fueling the rally. Real yields are now firmly positive, but that hasn't weakened the rally.

We believe that over time, real interest rates will eventually lead to the end of the rally and put pressure on the rally.

In terms of the US dollar, HSBC expects that this may not last into 2024, although the USD is weakened due to high rate cut expectations in 4Q23.

First of all, in line with the decline in US Treasury yields, the main reason for the weakening of the US dollar is the expectation of a sharp rate cut by the Federal Reserve, but HSBC is cautious about the size of the Fed's rate cuts in the future

Secondly, according to the market's current expectations, the cooling of US economic data and the entry into the "Goldilocks" phase are indeed not good for the dollar. But HSBC believes that if the U.S. economy falls into a more severe deterioration, it could be positive for the dollar, dampening risk sentiment and leading to a lower:

The slowdown in the U.S. economy will lead to a slowdown in the export growth of U.S. partners, and the overall global export performance and global economic growth will decline further. A strong dollar has been offsetting weakness in global growth. In other words, if the dollar starts to stall, then it will only exacerbate the weakness of the global economy. The bigger risk is that the US economy slows more than expected, dragging down global growth and sending the US dollar lower due to its risk appetite and countercyclical status, which could have a more negative impact on gold prices. The continued weakening of the US dollar cannot be expected to pull it up further**.

HSBC pointed out that there are five main reasons why central banks are buying gold aggressively:

Portfolio diversification. It can be used as a diversifier for your investment portfolio to reduce the risk of holding currencies and bonds in other countries, and buying can reduce the risk of holding large amounts of US dollars.

Reduce risk. **There are no counterparties and therefore no credit risk.

Respond to significant financial risks. In a balance-of-payments crisis, such as the 1997-98 Asian financial crisis,** it can be used to pay for necessary imports or to prop up the national currency, and it can also be used as collateral for loans.

Emergency funding. ** is a reliable fund for the state in case of emergency. In times of national emergency or conflict, fiat currency may not be cashed out, and it can be used**.

Increase prestige. Central banks in some emerging market countries may be inclined to move closer to developed countries' holdings to endorse their creditworthiness.

According to IFS data, the central bank bought 1,082t** in 2022, more than double the previous year and the highest level since 1968, pushing gold above US$2,000 an ounce.

In 2023, the buying trend continues. According to the World** Association and IFS data, central banks amassed an estimated 800t** in the first three quarters of 2023.

Geopolitical risks tend to push central banks to hold more**. The economic incentive to manage foreign exchange reserves in a new and more undesirable environment indirectly motivates countries to hold a larger share. In addition to geopolitical reasons, the growth of foreign exchange reserves often leads to the diversification of central bank reserves, and ** is the best option.

In our view, central bank purchases could be as high as 925t in 2023. In our view, a combination of geopolitical risks, the need for portfolio diversification and ample USD reserves will keep central banks buying in 2024-2025, albeit at a more modest pace than in 2022-2033.

We will increase central bank purchases** from 600 tonnes to 800 tonnes in 2024 and 700 tonnes in 2025. While our ** shows that central bank purchases have weakened, we think central bank purchases will remain at historically high levels and provide support for gold prices.

HSBC believes that the geopolitical risks and frictions that have escalated over the past few years have played an important role in maintaining the gold price, and this impact will continue. While gold prices are likely to appear**, geopolitical risks will keep gold prices elevated.

In 2024, frequent political elections around the world will also shape the price of gold

While geopolitics may not be the decisive factor in the eventual influence, it has risen markedly over the past few years. 2024 will be a year of high geopolitical risks, which will undoubtedly have an impact on **.

An important indicator of where these risks are heading will be elections. In 2024, there are 75 elections expected worldwide, including Taiwan, the United States, India, Indonesia, Mexico, the European Parliament, South Africa and Venezuela, half of which will be ** elections, with 4 billion voters participating, about half of the world's total population.

Geopolitical uncertainty and safe-haven demand for ** are likely to remain high until the election results are known. Traditionally, when the center-left is in power, it tends to do better. For example, historically, when the Democratic Party was in power, the U.S. has generally performed better.

The increased frequency and severity of extreme weather events such as heat waves, floods, and wildfires can have a significant impact on society and the macroeconomy. Rising temperatures have proven destructive and are expected to intensify given current concentrations of greenhouse gases in the atmosphere and global emissions in the coming years. These effects further increase the attractiveness of safer assets such as ** and support them**.

At the same time, economic players, including asset managers, expect economic instability as climate risks rise**Can be seen as a way to diversify and hedge climate risk. We believe that as climate risks and climate impacts increase, investors are likely to reallocate assets to **, which could have a positive impact on gold prices.

The bank believes that in 2022, global liquidity will weaken, which is expected to support ***, but the extent of support is relatively limited:

Looking ahead, the OECD expects a slow recovery in global volumes, but remains relatively weak compared to historical standards. Under the influence of ongoing geopolitical tensions and climate-related issues, the ** chain of global businesses is likely to continue to be disrupted.

According to the OECD**, the world** is estimated to grow by 11%, and the world** will increase by 2 percent year-on-year in 20247%, which will grow by 33%。

From a point of view, we don't think a slight improvement in flow is not enough on its own to weigh on the flow, but we wouldn't see the weakness as a key catalyst for gold prices.

However, the impact of jewelry consumption on *** is not easy to detect, and there is a large lag. Changes in buying patterns can take several months to be transmitted to the gold price.

Looking ahead to 2024, HSBC believes that the current gold price is already above US$2,000 an ounce, dissuading many sensitive consumers in emerging markets, and expecting softer jewellery demand this year and next.

HSBC said that from a national perspective, China and India account for about half of the world's physical demand, including half of the demand for jewelry. Therefore, the demand of the two countries is a key factor affecting the world's largest market, and observing the consumption patterns of India and China will help the world's largest trend.

Judging by the available data,In the third quarter of 2023, China** jewellery demand fell 6% year-on-year, mainly due to consumers reducing their purchases due to the high price of gold. Jewellery demand in India grew by 6% over the same period, mainly driven by festive sourcing demand in the southern state of Utahmadna. Unlike China, a significant portion of India's ** jewellery demand comes from the bottom 50% of the population, thereforeThe Indian jewellery market is very sensitive to change。And unlike the Western market, the changes will be quickly transmitted to the jewelry, and the volatility is very strong.

In the third quarter of '23, the demand for ** jewelry in most other countries declined, the decline in Western countries was generally modest, and the ** consumption in most emerging market countries fell significantly.

HSBC believes that more than $2,000 ounces will generally limit the purchase of sensitive buyers in emerging markets, and even in less sensitive consumer countries in North America and Western Europe, rising prices and interest rates will dampen demand.

The bank expects to:

Economic activity will remain weak in the first half of 2024 and may slow further in most parts of the world, after which it will gradually recover. While this in no way means a collapse in demand for jewelry, it does not bode well for consumption. Falling inflation eases the squeeze on real incomes and boosts spending power, but higher interest rates limit consumption at the same time. In our view, unless gold falls below $2,000 an ounce, global jewellery demand will not recover quickly.

The outlook for jewellery demand in the rest of the world is likely to be subdued this year and next,** which will dampen demand in most non-OECD countries.