Helpful miscellaneous articles
regarding our retirement plan and planning.
Like you, I review my retirement nestegg and plan from time to
time. Recently, I went though some
continued education for some credentials I maintain and it occurred to me that
we all could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
Will gold
prices hit another all-time high in 2024?
July 15, 2024
With
geopolitical tensions, expected interest rate cuts, inflation and central bank
buying in focus, what is the gold price forecast for 2024 and beyond?
Key takeaways
- The
key drivers behind gold prices in 2024 have shifted, decoupling from the
outlook for Fed interest rate cuts and U.S. real yields.
- Gold
prices continue to hit all-time highs, driven by a multitude of factors
including heightened geopolitical risks, expectations the Fed will begin
lowering rates and central bank buying.
- The structural bull case for gold
remains intact, even as prices have risen sharply. Prices are expected to
average $2,500/oz in the fourth quarter of 2024.
Fed
rate cuts and the gold price forecast for 2024
Gold prices have continued to hit fresh highs in 2024 due to a
wide range of factors — from escalating geopolitical risks and the interest
rate outlook to budget deficit concerns, inflation hedging and central bank
buying.
Gold’s blistering rally this year was partly fueled by
expectations the Federal Reserve (Fed) would cut interest rates as many as
three times in 2024, as stubborn inflation started to ease. But current
projections suggest only one rate cut is penciled in for the remainder of 2024.
Traditionally, a weaker U.S. dollar and lower U.S. interest
rates increase the appeal of non-yielding bullion. But a significant decoupling
started to emerge in early 2022 and gold’s relationship with U.S. real yields
has broken down even further this year.
“Gold’s resurgence has come earlier than expected, as it further
decouples from real yields. We have been structurally bullish gold since the
fourth quarter of 2022 and with gold prices surging past $2,400 in April, the
rally has come earlier and has been much sharper than expected. It has been
especially surprising given that it has coincided with Fed rate cuts being
priced out and U.S. real yields moving higher due to stronger labor and
inflation data in the U.S,” said Gregory Shearer, Head of Base and Precious
Metals Strategy at J.P. Morgan.
US
10-year real Treasury yield and gold prices
Economic and geopolitical uncertainty tend to be positive drivers
for gold, due to its safe-haven status and ability to remain a reliable store
of value. It has low correlation with other asset classes, so can act as
insurance during falling markets and times of geopolitical stress.
In addition to interest rate drivers and geopolitical concerns,
data shows there has also been a reluctance by physical holders to sell gold. A
general aversion to short bullion financially, despite the outsized rally,
underscores gold’s structurally bullish drivers outside of U.S. real yields.
“Amid fraying geopolitics, increased sanctioning and
de-dollarization, we observe an increased appetite to buy real assets including
gold,” Shearer said.
With gold prices hovering around all-time highs, is another
bullish run expected for the precious metal as rates begin to fall?
“Many of the structural bullish drivers of a real asset like
gold — including U.S. fiscal deficit concerns, central bank reserve
diversification into gold, inflationary hedging and a fraying geopolitical
landscape —have lifted prices to new all-time highs this year despite a stronger U.S. dollar and
higher U.S. yields, will likely remain in place regardless of the U.S. election
outcome this autumn,” said Natasha Kaneva, Head of Global Commodities Strategy
at J.P. Morgan. “Nonetheless, precious metals markets will be focused on
any potential policy changes that could accentuate or alter one or more of
these themes.”
Performance
of gold prices around the first cut of the last three Fed cutting cycles
“Across all metals, we
have the highest conviction on a bullish medium-term forecast for both gold and
silver over the course of 2024 and into the first half of 2025, though timing
an entry will continue to be critical,” Shearer said.
Any retracement in the coming months could provide investors
with an opportunity to begin positioning for further strengthening, ahead of
the Fed’s planned cutting cycle.
Will
gold prices hit another all-time high?
With the strong structural bull case for gold remaining
intact, J.P. Morgan has upgraded its gold price targets for this year and
2025.
Gold prices are expected to climb to $2,500/oz by the end of
2024, according to J.P. Morgan Research estimates. This prediction assumes
a Fed cutting cycle commencing in November 2024, pushing gold prices to new
nominal highs.
“The direction of travel is still higher over the coming
quarters, forecasting an average price of $2,500/oz in the fourth quarter of
2024 and $2,600/oz in 2025, with risk still skewed toward an earlier
overshoot,” Shearer said.
Gold price predictions are based on J.P. Morgan economic
forecasts, which have U.S. core inflation moderating to 3.5% in 2024 and 2.6%
in 2025.
Gold price forecasts
The structural drivers that have helped gold’s rally so far will
still remain a critical bullish driving force going forward, with
J.P. Morgan economists expecting a Fed cut to come in November.
Outside of near-term mean reversion, the biggest bearish risk to
the bullish gold view is a scenario where the Fed turns much more aggressive in
ensuring inflation swiftly reaches its target.
“While we still think it’s a tail risk, a transition to much
more hawkish Fedspeak that prompts the market to begin pricing a switch back to
further hikes could drag on gold, even with the recent decoupling from yields.
This could eventually set up an even larger rally if it pushes the economy
toward a hard landing, but the road there would likely be a lot bumpier than
our forecasts envision,” Shearer added.
“The
direction of travel is still higher over the coming quarters, forecasting an
average price of $2,500/oz in the fourth quarter of 2024 and $2,600 in 2025.”
Gregory Shearer
Head of Base and Precious Metals Strategy,
J.P. Morgan
Central
bank buying and ETF flows to support gold demand in 2024
In addition to the imminent rate cut and rising geopolitical
tensions, central banks were a major driver of gold prices in 2023 and will
continue to be so in 2024.
Led by China, central banks purchased 1,037 tonnes of gold in
2023. In the same vein, 2024 has started strongly with net purchases of 290
tonnes in the first quarter — making it the fourth strongest quarter of
purchases since the buying binge began in 2022, according to the World Gold
Council. This also came in around 36% higher than the quarterly pace (around
213 tonnes) implied by J.P. Morgan Research’s annual estimates of 850
tonnes in 2024. The 70-tonne increase in net purchases versus the fourth quarter
of 2023 is also despite a 5% quarter-on-quarter increase in the average price
of gold.
“Overall, the vigorous level of central bank purchasing, as well
as the continued ascent in gold prices since the end of the first quarter, has
us thinking about the price sensitivity of central bank demand,” Shearer
said.
Gold
as a percentage of total reserve holding across select central banks
As central banks are buying more gold structurally, it also
appears they are becoming a bit more tactical around price.
"We think the price level of gold has minimal impact on
long-term central bank acquisition plans, however, price changes do appear to
influence the pace and cadence of net purchasing,” Shearer added.
China’s record gold imports might face downward pressure after
the People’s Bank of China—which controls the amount of gold entering China via
quotas to commercial banks—paused reported gold reserve purchases in May,
ending a massive buying spree that ran for 18 months. However, central banks
and other physical consumers are expected to remain strong dip buyers,
supporting a higher floor in gold prices.
Along with central bank interest, increased investor appetite in
the physical gold market should also be a major flow contributor to future gold
rallies. Total ETF holdings in gold have fallen steadily since mid-2022, but so
have London vault holdings of gold as demand from EM central banks and physical
consumers have physically offset ETF outflows.
A re-lengthening of investor ETF holdings triggered by the
onset of a cutting cycle could quickly act to tighten up the physical gold
market and is expected to be positive for bullion and supportive of a climb in
prices in the second half of 2024
“While gold price movements may be fully decoupled from real
yields and Fed pricing for now, we still think this would add an extra pillar
of support later this year mainly through an eventual shift back toward retail
ETF inflows, as money market funds become less attractive. Gold prices have
already jumped higher even as ETF holdings have continued to sag, and a
turnaround here could be quite bullish, driving another sustained leg higher in
prices,” Shearer noted.
+++++
Gold prices: What has been driving
the commodity higher
Fri, Jul 26, 2024, 3:08 PM EDT
Gold (GC=F) is often referred to as a hedge against inflation and volatility. Gold
has been hitting new highs in recent months, raising interest among
investors for possible allocation to portfolios.
Allegiance
Gold co-founder and COO Alex Ebkarian joins Wealth! to give insight into what
beginner investors looking to get into gold should approach adding it to their
portfolios.
Ebkarian
starts with what to keep in mind for gold: "The Idea of gold is, number
one, you want to be able to preserve your buying power, and then you want to
look at the outlook."
He explains
that there are a number of factors driving gold prices higher, including the
potential for future interest rate cuts and central banks buying the asset.
In terms of
allocations for gold, Ebkarian states: "According to The World Gold
Council and the 'In Gold We Trust' report, what they've done is they've
actually calculated over a long period of time, what is the proper allocation?
And what they found is that a 15% allocation is an ideal fit. That does two things.
Number one, it de-risks the portfolio. And number two, it enhances a
risk-adjusted return."
(As with any of these informative articles,
anyone who needs someone to talk to about
this
very subject contact me and I can direct you to a knowledgeable advisor).
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