Central banks likely to buy more gold in 2024

Gold had a strong 2023, defying expectations amid a high interest rate environment and outperforming commodities, bonds and most stock markets, the World Gold Council (WGC) says as it outlines possible scenarios for the gold market in 2024.

In its ‘2024 Outlook on Gold’ report, published last Thursday, the council stated that market consensus was for a “soft landing” in the US which should positively affect the global economy.

“Historically, soft landing environments have not been particularly attractive for gold, resulting in flat to slightly negative average returns.

“That said, every cycle is different.

This time around, heightened geopolitical tensions in a key election year for many major economies, combined with continued central bank buying could provide additional support for gold,” it notes.

Geopolitics

Geopolitics added between three and six per cent to gold’s performance in the last year, the WGC points out.

In 2024, factors such as Israel’s war in Gaza, and major elections taking place globally, including in the US, the European Union, India and Taiwan, mean investors’ need for portfolio hedges is likely to be higher than normal.

Central banks have also been a significant source of demand for the gold market.

Central bank buying is likely to reach a record year after breaking a year-to-date record in the third quarter.

The council expects this trend to continue into 2024.

Further, it says, the likelihood of the US Federal Reserve steering the US economy to a safe landing with interest rates above five per cent is by no means certain, while a global recession is still on the cards.

“From a risk-management perspective, this would provide strong support to the case of maintaining a strategic allocation to gold in the portfolio,” the WGC state-Mining weekly.