December 4, 2023
In a stunning surge, spot gold prices reached a new record high of $2,110.8 per ounce on Monday, December 4, 2023. This remarkable climb, up 1.6% by 3:30 p.m. ET, surpassed the previous all-time high of $2,072.49 set in 2020. U.S. gold futures also settled at a record peak of $2,089.7, marking a significant milestone in the precious metal’s history.
Experts believe that gold prices are on a trajectory to hit even higher levels next year, potentially maintaining a stable position above the $2,000 mark. The driving forces behind this bullish outlook include geopolitical uncertainty, the prospect of a weaker U.S. dollar, and the potential for interest rate cuts.
Bart Melek, Head of Commodity Strategy at TD Securities commented, “Central bank buying is likely why the recent higher interest rate-driven gold selloff, did not go through key supports slightly above $1,800/oz. He notes that these purchases have provided a firm floor for gold prices, especially during recent downtrends. Melek anticipates that this trend will continue, pushing gold to new all-time highs. He highlights the significant role of central banks in the gold market, particularly the People’s Bank of China (PBoC), which, despite steady buying, has a relatively low gold reserve compared to its geopolitical competitors. The PBoC’s current gold reserve is a mere 4% of its $3.115 trillion in reserves, in stark contrast to the U.S. and Germany, where gold constitutes around 69% and 68% of their respective foreign exchange reserves. Melek predicts that the continued interest of central banks in gold will drive its demand and price in the coming years.”Bart Melek, Head of Commodity Strategy at TD Securities
The World Gold Council (WGC) also provides insights into the future of gold prices. According to the WGC, the interplay between inflation and central-bank interventions will be a key determinant of gold’s performance in 2023. The Council anticipates a mixed set of influences on gold, including a mild recession, weaker global growth, and geopolitical tensions, which historically have been favorable for gold. The WGC also notes that any weakening of the U.S. dollar, as inflation recedes, could bolster gold prices. Moreover, they highlight that gold has traditionally fared well during recessions, delivering positive returns in five of the last seven recessions. In 2023, the dynamics at play are expected to shift, with signs of reduced retail investment demand but potentially increasing institutional interest in gold, particularly if yields move downward. The WGC also points out that the recent drop in the U.S. dollar index (DXY) bodes well for gold, as a peak in the dollar has historically led to positive gold returns.
With the combination of central bank buying, geopolitical uncertainties, and economic trends are aligning to create a favorable environment for gold prices, indicating a sustained rally in the coming year.