Gold, a safe-haven investment during a challenging period, has been trending upward encouraging calls for a surge in the commodity’s price to reach its price peak.
The price of the yellow commodity has been ascending amid rising geopolitical tensions in the Middle East and the increasing probability of the Fed adopting a dovish stance in the coming year. The likelihood of the Fed cutting interest rates in 2024 has resulted in the long-term treasury rates declining, making the commodity more appealing to investors compared to bonds.
Gold Price Projections
According to Mark Newton, head of technical strategy at Fundstrat, as quoted on Yahoo Finance, driven by factors like falling real rates, rising cycles and the current geopolitical scenario, the precious metal is estimated to hit $2500 per ounce, surging about 22% from its current price levels.
As per Bank of America, as quoted on Kitco, if the Fed opts for an earlier cut, Bank of America strategists anticipate gold reaching $2,400 per ounce by the end of 2024.
Michele Schneider, partner and director of trading education and research at MarketGauge, as stated in the Yahoo Finance article, estimates gold prices to reach $3,000.
Challenging Macro Backdrop Pushes Gold Prices
As per JP Morgan’s global equity strategy team’s new outlook, the broad market index, the S&P 500, is forecast to decline around 8% by the end of 2024, amid heightened geopolitical and political risks, according to Yahoo Finance.
JP Morgan’s bearish outlook was also supported by Morgan Stanley, which forecasts the S&P 500 to fall to 4,500 at the next year-end. However, Morgan Stanley, unlike JP Morgan, was bullish on the corporate earnings front.
The bearish outlook on the index can prompt investors to take shelter in the precious metal to hedge themselves from the downside.
Wealth Protection During Recession Likelihood
In periods of economic uncertainty, like recessions, gold attracts more investors due to its enduring value. Frequently seen as a safe-haven investment, investing in the yellow metal during volatile periods can prove to be beneficial. As returns on bonds, stocks, and property decrease, interest in gold rises, boosting its value.
Economists at Deutsche Bank expect a mild recession in the first half of 2024, stemming from the U.S. economy consecutively contracting in the first two quarters of 2024 and weakening economic indicators. According to EY, the probability of the U.S. economy sliding into a recession in 2024 is around 50%.
Warren Buffett’s increasing cash reserves, standing around $157 billion, indicates that ‘The Oracle of Oklahoma’ is bracing for a projected economic downturn or even a recession (Read: ETFs in Focus as Buffett’s Cash Surge Indicates a Likely Recession).
Value of Greenback Further Helps Gold Prices
Gold prices are inversely related to the value of the U.S. dollar as gold is priced in dollars. A weaker U.S. dollar generally leads to higher demand for gold, pushing its price upward, as it becomes more affordable for buyers holding other currencies.
The increasing probability of the Fed embracing a dovish approach and cutting its interest rates in 2024, has resulted in a weakening U.S. dollar. According to Trading View, U.S. Dollar Index (DXY) has fallen about 2.74% over the past month and around 1.46% over the past year.
ETFs in Focus
Investors wanting to hedge themselves against an economic slump, the likelihood of a recession and falling greenback can increase their portfolio exposures in Gold ETFs. Across extended investment periods, gold preserves its purchasing power, outpacing inflation and contributing significant diversification to an investment portfolio due to its historical tendency to have a negative correlation with other asset classes.
Below, we highlight a few funds.
SPDR Gold Shares (GLD)
SPDR Gold Shares is designed to track the spot price of gold bullion. The fund has gained about 13.24% since early October and around 14.40% over the past year.
iShares Gold Trust (IAU)
iShares Gold Trust is designed to track the spot price of gold bullion. The fund has gained about 13.24% since early October and around 14.40% over the past year.
SPDR Gold MiniShares Trust (GLDM)
SPDR Gold MiniShares seeks to reflect the performance of the price of gold bullion. The fund has gained about 13.36% since early October and around 14.55% over the past year.
abrdn Physical Gold Shares ETF (SGOL)
abrdn Physical Gold Shares ETF is designed to track the spot price of gold bullion. The fund has gained about 13.24% since early October and around 14.64% over the past year.
Goldman Sachs Physical Gold ETF (AAAU)
Goldman Sachs Physical Gold ETF is designed to track the spot price of gold. The fund has gained about 13.30% since early October and around 14.67% over the past year.
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SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
abrdn Physical Gold Shares ETF (SGOL): ETF Research Reports
SPDR Gold MiniShares Trust (GLDM): ETF Research Reports
Goldman Sachs Physical Gold ETF (AAAU): ETF Research Reports
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