Navigating Uncertainties: Gold and Silver Forge Ahead in 2024

Indian jewellery magazine by solitaire jewellery magazine

Gold and silver are surging in 2024, with gold hitting an all-time high in May, driven by geopolitical tensions and central bank buying. However, a pause in China’s purchases caused a dip. According to bullion analyst Sanjiv Arole, potential US rate cuts and ongoing economic uncertainties keep the outlook for precious metals promising.

The idiom “counting one’s chickens before they hatch” aptly describes a key event in June 2024. In the ongoing T20 World Cup in the USA and the West Indies, several favourite teams were knocked out before the Super 8s, assuming easy passage to the next round. Consequently, the US, Afghanistan, and Bangladesh advanced at the expense of New Zealand, Sri Lanka, and Pakistan. Defending champions England barely scraped through, while unbeaten India and South Africa had their anxious moments, with South Africa narrowly avoiding their infamous choking syndrome twice. Australia, initially strong, were defeated by Afghanistan and subsequently knocked out, with no favours from India and Bangladesh.

Finally, we come to piece de resistance of the month thus far – gold. Now, gold as well as silver are riding high in 2024. On 20th May, 2024, in early Asian trade, gold soared to its all-time high of $2,450 per ounce after it was learnt that the Iranian president’s helicopter had crashed leaving all on board dead. Immediately, both gold and silver took off with everyone bullish on the price front. Gold bugs sprung up at every street corner and speculations were made of gold waltzing its way towards $3,000 per ounce and silver too scaling $50 per ounce in its wake once again after its narrow miss in 2011.

Gold has a score of positives in its favour with geopolitical tensions over Ukraine and Gaza leading the way, the unabated buying of gold by central banks was also the cornerstone of demand for gold, then the much-anticipated US interest rate cuts seemed a foregone conclusion just waiting to happen. Apart from all that, economic data from across the globe seemed to ebb and flow for gold. All negatives for gold were swept aside and the yellow metal appeared to have the ‘Midas touch’ as everything turned to gold. It seemed that nothing could stop the gold juggernaut.

Then, out of the blue came the news that the People’s Bank of China had put a pause on its 18-month consecutive buying spree in gold. As a result, the bottom literally came off the gold price. Gold went into a tailspin and even went below the $2,300 per ounce support level while silver slid below $29 per ounce briefly. Suddenly, gold became vulnerable and was plagued with self doubts. Every bit of news on the economic front seemed to be loaded against gold and in favour of the USD. Both gold and silver seemed to tread with extreme caution.

The interest rate cuts appeared to be very far away. However, gold, in particular, showed its resilience as it clawed back on track in the $2,300-2,350 per ounce region. Silver, too, got closer to the $29 to $30 per ounce range. In fact, on 21st June, gold reached $2,366 per ounce (intra-day) and silver to crossed $30 per ounce briefly. Although, there was some correction towards the end of the week, both gold and silver began the new week on a positive note. Gold seems in a consolidation phase at the moment, ready to cash in on any opportunity. As usual, silver is lying in its slipstream.

Normally, research outfits that monitor and analyse demand-supply flows of precious metals are very cautious on making price predictions, they generally are bearish on the price. The LBMA price forecast made by some analysts at the beginning of the year made interesting reading. The average gold price 2024 forecast is $2,059 per ounce, at least 6.1% more than the actual 2023 average price of $1,940.54 per ounce, with a high of $2,405 per ounce and a low of $1,781 per ounce.

With gold currently establishing a firm support level around $2,300 per ounce, some research outfits have already revised their price forecasts upwards to an average price of around $2,300 per ounce for the full year. As far as silver was concerned, the annual average price forecast by analysts for the year was $24.80 per ounce, with a high of $32 per ounce and a low of $18 per ounce. Here too, the price forecasts have been revised upward to near the $30 per ounce region. Have all research outfits switched from being bears to bulls on the commodity prices? It is a trifle early to say, but it would seem that are becoming more realistic in their outlook.

In early June, London-based research firm Metal Focus released its Gold Focus 2024 report. Let’s examine their market analysis for gold in 2023 and their outlook for 2024. Key drivers for gold prices in 2023 included expectations of rate cuts, strong central bank buying, geopolitical tensions, and US debt concerns, which collectively boosted the average gold price by 8% to a record high. However, the Federal Reserve’s higher interest rates and competition from other assets weighed on prices. Total supply rose by 4%, led by recycling, while demand dipped by 2%, resulting in a market surplus exceeding 200 tonnes. Mining output showed minimal growth, but hedging activity increased significantly, with the hedge book growing by 59 tonnes, the largest volume since 2014.

Recycling rose by 9% to a three-year high of 1,239 tonnes, with China leading at a 36% increase, and India showing price-led gains with fewer distress sales. Jewellery fabrication remained flat year-on-year but varied across regions. In Asia, China saw a 14% rise due to delayed post-Covid recovery, consumption, restocking, and retail expansion. In contrast, India’s demand fell by 7% due to high prices, shifting towards studded and lightweight jewellery. Europe saw its highest fabrication levels since the late 2000s, driven by demand for high-end jewellery and watches.

However, U.S. fabrication eased by 9% due to declining consumption. Physical investment demand showed regional contrasts. Overall demand fell by 1%, with growth in the Middle East and East Asia, led by China and Turkey. India’s demand rose by 7% due to higher price expectations, with little interest in profit-taking. European demand more than halved, driven by a 75% slump in Germany. Industrial demand fell by 3%. Net official purchases in 2023 topped 1,000 tonnes, following a record 1,030 tonnes in 2022, with China leading at 225 tonnes, increasing gold’s share in its total reserves to 4%.

Outlook for 2024

The annual average gold price is forecast to rise by 16% to a record $2,250 per ounce in 2024. Key drivers include US debt concerns, anticipated rate cuts, ongoing geopolitical tensions, and economic uncertainties, with strong central bank buying supporting prices.

However, the market surplus is expected to double as supply rises by 3% and demand falls by 2%. Mine production is projected to increase by 3%, and while hedging will continue, it will be lower than in 2023. Recycling is expected to rise by 5% to its highest level since 2012, with Indian recycling increasing by only 5% due to the absence of distress sales.

Jewellery fabrication is forecast to dip by 2%, with declines in China and Turkey due to economic uncertainties and higher fixed deposit returns, respectively. In contrast, India is expected to see a 4% increase due to a strong economy, good monsoon, and adaptation to higher gold prices. Western demand is also expected to improve due to retailer restocking and high-end consumer demand.

Electronic demand is projected to grow by 9% due to increased use of gold in 5G, AI, defence sectors, and a rebound in consumer electronics. Physical investment is set to decline by 3%, with significant losses in Europe and the US, while East and South Asia are expected to grow due to anticipated gold price performance. The Middle East, led by Turkey, is expected to see a notable decline due to high prices and alternative investment options.

Net official sector purchases are expected to remain elevated above the 1,000 tonnes seen in 2022 and 2023, with central banks continuing to buy gold due to trends towards portfolio diversification and de-dollarisation amid high geopolitical and economic uncertainties.

Meanwhile, both gold and silver appear to be in a defensive mode trying to consolidate itself above key support levels. Gold is around $2,320 per ounce and silver just shy of the $29 per ounce mark (26th June, 2024 in early Asian trade). So, have the precious metals lost their steam, run out of gas? Is this a temporary consolidation phase or will gold challenge $2,450 per ounce later in the year and silver begin its arduous journey again towards $50 per ounce again?

The US Fed’s focus on lowering inflation is a major obstacle to rising gold and silver prices. However, recent evidence shows inflation slowing to around 2.6%, potentially leading to a rate cut as early as September, followed by at least two more cuts later in the year. This could boost gold and silver prices. A World Gold Council (WGC) survey indicates nearly a third of central banks plan to buy more gold this year, with net purchases expected to exceed 1,000 tonnes in 2024.

Investors in wealthy countries are also likely to turn to gold despite record prices, and gold ETFs in Europe and the US are expected to see positive inflows in 2024 after a period of net selling. High investor interest in gold and silver ETFs in Asian markets further brightens the outlook for gold demand. Overall, factors such as de-dollarisation, geopolitical and economic uncertainties, US debt concerns, and expected rate cuts by central banks, including the ECB, create a favourable environment for gold and silver. Will gold rise significantly?

Finally, a private entity based in the US has offered a silver bond, making it the first silver-based financial loan in more than 150 years. The loan is expected to be paid by physical silver. Silver seems poised to make a comeback as a financial tool into the marketplace after central banks had banished it more than a century and half ago. Then, it is worth remembering that the current all-time gold high of $2,450 per ounce in nominal term is still way short of the 1980 high of $850 per ounce in real term prices!!!

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