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    • 2 days ago

World Gold Council’s Gold Mid-Yearly Outlook 2024A market in search of a catalyst




Gold has performed remarkably well in 2024, rising by 12% y-t-d and outpacing most major asset classes. Gold has thus far benefitted from continued central bank buying, Asian investment flows, resilient consumer demand, and a steady drumbeat of geopolitical uncertainty. As we look forward, the key question in investors’ minds is whether gold’s momentum can continue or if it’s running out of steam. 

 

With a few exceptions, the global economy is showing wavering growth indicators – eager for rate cuts– amid lower but still uncomfortable inflation. And the market’s outlook is not too dissimilar. Our analysis suggests that the gold price today broadly reflects consensus expectations. However, things rarely go according to plan. And the global economy, as well as gold, seem to be waiting for a catalyst.

 

For gold, we believe the catalyst could come from falling rates in developed markets that attract Western investment flows, as well as continued support from global investors looking to hedge bubbling risks amid a complacent equity market and persistent geopolitical tensions. 

 

Gold’s outlook is, of course, not without risks. A sizable drop in central bank demand or widespread profit-taking from Asian investors could curtail its performance. 

 

As it stands, however, global investors continue to benefit from gold’s role in robust asset allocation strategies. 

 

Key highlights of WGC Gold Mid-Yearly Outlook 2024:

 

1.    A somewhat flat second-half outlook seems uninteresting at face value, but what’s compelling is gold’s strong performance even despite the factors at play that are often categorized as a hostile environment for gold, like high interest rates and a strong USD.

·      With these conditions “working against” gold, it has still comfortably been trading above US$2,300/oz for most of Q2.

·      At the time of writing, gold is up 12% y-t-d

 

 

2.    The global economy is caught between lower but stubborn inflation and sub-par growth, and pressure is mounting for policymakers.

·      Markets seem eager for lower rates but there is also a potentially complacent equity market that is brushing off bubbling risks.

·      The global economy, as well as gold, seems to be waiting for a catalyst.

·      Gold may move sideways if key variables end the year in line with current consensus expectations.

 

 

3.    Western investors have been a missing piece of the puzzle. High trading volumes indicate healthy interest, but gold ETFs in Western markets have seen net outflows year to date, and retail demand is also soft. Yet, even with Western investors not showing up in full force, gold’s strong performance in H1 suggests that the market is still not saturated and could see another leg up in H2.  Lower interest rates, recession risks and geopolitics may lure them back in. In fact, European funds have seen two months of inflows following a cut by the ECB.

 

4.    We often view consumers as “price takers” vs. “price makers.” But jewellery and technology combined make up more than 40% of annual demand, and the hot gold price has cooled down demand for these goods.

·      The flatter gold price that we expect for the remainder of the year brings price stability that could give demand in these categories another boost.

 

5.    On the flip side, lower than expected central bank demand (while unlikely) or profit taking by Asian investors (informed by PBoC pause) could put pressure on this year’s performance 

 

·      Because central bank demand is often policy-driven, it is difficult to ascertain where annual demand will land.

·      But despite some recent deceleration in purchases, our Central Bank Survey indicates that there’s widespread interest in gold by central banks and they continue to see reserves growing.

 

6.    Overall, the extent of gold’s reaction upwards or downwards will be a function of the magnitude by which each of the below factors – or a combination thereof – move.

·      Interest rates; Recession risks; Geopolitics; investor profit taking, and central bank demand.




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