Gold: Limited upside this year, more upside next year

This year gold prices have rallied by more than 10% versus the US dollar. A weaker dollar and expectations that the Fed hiking cycle will come to an end soon are the main reasons behind its strength. Concerns about the economic outlook, inflation and geopolitics tensions have also helped. We think that the upside is limited from current levels. In fact prices could even fall back to 1.900-1.950 before heading higher again. The main reason for this is that interest rate markets anticipate Fed rate cuts to start in Q3 so this is reflected in gold prices. We think that rate cuts will come later and that the easing will only to start at the end of this year.

We also expect a modest recovery of the dollar in the coming months. The pricing out of some Fed rate cuts and a modest dollar recovery will most likely result in lower gold prices but not in a change in trend. For 2024 we are optimistic about the outlook of gold prices. Monetary policy easing by the Fed, ECB and BoE will be a positive for gold prices in 2024 as the rate differences between USD/EUR/GBP versus gold (zero interest rate asset) narrow. It is likely that the effect will be less strong than when interest rates were much lower as a considerable spread in favour of these currencies will remain. Our new year end forecasts are 2.000 for 2023 and 2.200 for 2024.