New York, January 2, 2024 – Gold is poised to record its first annual gain in three years as investors continue to place their bets on the Federal Reserve’s anticipated shift towards loosening its monetary policy stance in 2024.
The price of bullion experienced fluctuations on the final trading day of 2023, but it is on track to finish the year approximately 13% higher. Historically, gold has exhibited an inverse relationship with interest rates—when rates decline, gold tends to rise. This year, the movement of gold prices has largely been influenced by changing perceptions of the Fed’s future actions regarding interest rates.
Since October, there has been a growing expectation that the Fed will transition to a more accommodative monetary policy in 2024, driven by easing inflationary pressures and a cooling US labor market. Concerns surrounding the risk of a recession have further strengthened the case for holding debt, with traders speculating that global central banks may need to aggressively cut rates to stimulate economic growth. These views have propelled gold to gain nearly 13% since October 6, accompanied by declines in Treasury yields and the US dollar, which is on track for its weakest performance since 2020.
In early December, gold surged to a record high as traders bet that the US central bank would accelerate its rate-cutting efforts in the coming year. However, these gains were quickly reversed when market participants considered the positions to be overextended. Gold briefly surpassed the $2,000 mark again in mid-December after the Fed officials, during their final meeting of the year, delivered the clearest signal to date that an aggressive rate-hiking campaign has concluded.
Central banks’ significant purchases of gold have also played a crucial role in bolstering the precious metal’s strength. These robust acquisitions have contributed to gold trading at a significant premium to real Treasury yields—a key driver of its value—on a historical basis.
Additionally, gold has been supported by factors such as geopolitical uncertainty, with elections scheduled to take place in 2024, involving 41% of the world’s population.
As of 11:46 a.m. in New York, gold remained relatively unchanged at $2,064.79 per ounce.
