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Gold prices will likely rise further this year due to a weak US dollar and a decline in US treasury yields. Dollar and Yields nosedive on anticipation that US Fed will start cutting rates as soon as March 2024, said brokerage ICICI Direct in a note.
Gold prices rallied sharply in 2023 and moved above $2000 amid a correction in the US dollar and US treasury yields after US FED hit a pause button on its rate hike campaign and signalled rate cuts in 2024. Additionally, prices remained firm due to central bank buying and escalating geopolitical tensions.
The brokerage expects bullion to touch Rs 70,000 this year.
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" Concerns over slower global economic growth and escalating geopolitical tensions in the Middle East may continue to make gold valuable as a hedge against uncertainties Additionally, central banks are likely to continue with their buying spree, diversifying their reserves," said Pankaj Pandey, Head of Research at ICICI Securities.
In 2024, inflation is likely to moderate further and progress towards central banks targets while major central banks across the globe are expected to cut rates this year. The US Fed is likely to start cutting rates from first half, while ECB and BOE are likely to cut rates in the second half. The US dollar has started losing its steam and will continue to move south as the US Fed is likely to ease monetary policy early and more aggressively than other major central banks..
Rate cut will boost prices
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Rate cut will boost prices
Wars are still rampant on multiple frontiers that could deliver price shocks
- Hamas and Israel war
- Ukraine and Russia war
- Yemen Houthi attacks on ship in Red Sea
"Demand for yellow metal as a safe haven may rise due to economic and geopolitical uncertainty. Additionally, monetary easing by major central banks will push gold prices higher. Silver may rally further on a surge in demand in the industrial sector. Crude oil prices are likely to remain in a range of $60-$90 as the market may remain in balance," said the brokerage.
Global central banks purchased 337 tonnes of gold in the third quarter of calendar year 2023, the second-highest third quarter on record. Moreover, central banks have purchased 800 tonnes of gold this year so far which is 14 per cent higher compared to the same period last year. Looking at the current situation, the central bank will continue to add gold to diversify its reserves.
Total gold ETF holdings have declined in 2023 as rising interest rates diverted investors' attention away from gold. " We believe fresh investment demand may kick in 2024 amid weak dollar and expectation of rate cuts across major economies. Further, investors will buy gold as store value amid escalating geopolitical tensions in the Middle East and aheadthe of election in major economies including India and US," said Pandey.
The brokerage believes silver prices will touch Rs 85,000 this year as the market is likely to remain in deficit for a third consecutive year.
Global silver market is projected to see another deficit in 2023, marking a third consecutive year. The market deficit is expected to be around 140 million ounces in 2023
"Ebbing price pressure across major economies may push central banks to unwind tighter monetary policy putting downside pressure on yields. Demand for silver in the industrial segment is expected to grow by 8% to record this year amid electrification of vehicles and investment in 5G technology, photovoltaics and power grids. Physical investments demand in 2023 is forecasted to decline by 21%. However, in the coming year, fresh investment demand is expected to arise due to weakness in the dollar and buoyant safe haven demand," said Pandey.
