Gold and silver outlook 2024: Motilal Oswal lists four key factors that may influence prices in 2024

While gold saw gains of about 13–15% year-to-date, silver saw gains of over 8% year-to-date due to geopolitical tensions, central bank actions, whipsaws in the US yield curve and the dollar index, among other factors that sparked market movement, according to a recent report from brokerage house Motilal Oswal Financial Services.

In an effort to reduce inflation, central banks have been active this year in raising interest rates. The brokerage claimed to have seen a black swan event this year in addition to central bank action, which increased the risk premium for safe haven assets. Let's review the previous year from the perspective of the brokerages and examine four factors that the brokerage believes could affect prices in 2024.

Also Read: Why gold price surged 13% in 2023? Experts list out these 5 reasons

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Central Banks Action

Interest rate hikes have been swift and forceful, with major central bankers announcing more than ~1700 bps of increases since the year's beginning. Despite a decline in energy and food prices as well as QT by central banks, the CPI of all major economies has dropped from its recent peaks; nonetheless, the Core and Super Core CPI continue to show warning signs.

Following an increase in interest rates, market players now anticipate a change in the Fed's stance following its final policy meeting in 2023. At the policy meeting on December 23, Governor Powell made a U-turn, increased the likelihood of three rate cuts in 2024, lowered the growth estimate, and made little to no changes to the overview of inflation.

"Few fed officials however are not convinced with this dialogue and are putting cold water on these expectations, mentioning that it’s too early to talk about rate cut and we could see these higher rates for longer. Gold, Silver and other metals have already started to discount a rate cut in March’24, it will now be important to see the balance between Growth and inflation and the pace of interest rate cuts," the brokerage said.

Geo-political Tensions

Black swan events, such as the pandemic, Israel-Hamas war, Russia-Ukraine war, and debt crisis, have been occurring nonstop since 2020, and they have increased the risk premium associated with gold. The allure of gold and silver as safe haven assets is always heightened by geopolitical tensions; these two commodities consistently see strong price increases during periods of unease or fear.

"It is interesting to see that not all these major events and geo-political tensions have eased down peacefully - every uncertainty has been giving jerks to the market form the sidelines at certain intervals. Do more countries like China-Taiwan get involved in these wars like situation in the next year, is now important to see?," said Motilal Oswal in its report.

Growth concerns

The main causes of the rise in growth concerns are aggressive rate hikes and geopolitical tensions. In addition to the Fed, organisations such as the World Bank and the IMF have also lowered their growth projections for the upcoming year. In addition, as debt servicing costs rise, debt and spending limits were also reached in 2023, which has market participants concerned that this bubble may burst soon. After the rate hikes, there has been much discussion about a soft or hard landing. However, up to this point, US GDP data and Fed officials have created optimism for a softer landing.

Also Read: Don’t be carried away by ‘up to 16%’ return on gold leasing

Central bank gold buying

According to WGC data, during the first three quarters of 2023, central banks bought about 800 tonnes of gold, 14% more than they did during the same period the previous year. A flight to safer assets in the face of skyrocketing inflation propelled the record 1,136 tonnes of gold that global central banks bought last year, down from 450 tonnes in 2021. Not only were there net purchases for the thirteenth year in a row last year, but the annual demand reached its highest point since 1950.

Also Read: Gold and silver prices Today on 26-12-2023 : Check latest rates in your city

Outlook

There are undoubtedly a lot of variables to consider when discussing the upcoming year, as changes in monetary policy, shifts in the Dollar Index, and economic data points may all act as catalysts for the market. Market players will continue to monitor inflationary concerns and the Fed's response to them even after such aggressive rate hikes.

“We have already seen impact of rate cuts kicking in Gold and Silver prices however if data and inflation suggests otherwise and Fed does not ease the stance as per market expectations, that could cap gains for safe haven assets. However, the risk premium on the back of geo-political tensions, lower Dollar Index, higher rate cut expectations, slower growth fears, inflows in ETF, central bank gold bank spree, development in China and green technology and possible rupee deprecation could keep the floor strong,” the brokerage said. 

Also Read: Gold’s increasing relevance in your portfolio

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.