1 Hitting US$2470/oz on 18 July 2024, based on London Bullion Markets Association morning fixing
2 2024 Central Bank Gold Reserves Survey, World Gold Council, 18 June 2024
Source: World Gold Council. 2024 Central Bank Gold Reserves Survey, June 2024. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties
Figure 2. Central bank expectations on central bank gold holdings
During the strong rallies in April and May, many in the market discussed record-high central bank purchases of the metal. However, confirmed International Monetary Fund (IMF) International Financial Statistics (IFS) statistics point to a pullback in purchasing around that time, possibly due to high prices. We believe this pullback is temporary, and central banks strongly desire to increase gold purchases through the remainder of this year.
In fact, the World Gold Council’s survey of central bankers2 indicates that most central banks expect higher levels of gold purchases this year than last year, and the proportion that indicates that they are buying to diversify away from the US dollar has increased relative to last year. 81% of central banks expect higher central bank gold holdings in 2024, up from 61% in 2022. As a proportion of all foreign exchange reserves (including gold), 69% of central banks surveyed said they expect central banks to have a higher proportion of gold holdings in 2024, up from 45% when surveyed in 2022. Only 13% said lower, down from 24% in 2022. Interestingly, zero developed world central banks in 2023 said they want to hold gold as part of a de-dollarisation policy. In 2024, 6% of developed world central banks said that was a policy goal (survey sample of 18 developed world central banks in 2024 and 11 in 2023). That points to one central bank – and we assume it's Singapore, given that it has been an active buyer for the past year. Not many of the emerging market central banks admit to de-dollarisation as a motivation (only 11% and 13%, respectively, in 2023 and 2024, with 36 and 39 sample sizes). However, we know the events of 2022, with the start of the Ukraine war, profoundly changed central banks’ perception of risk around holding G7 currencies in the wake of asset freezes.
Source: Bloomberg, WisdomTree price model, data as of July 2024. Speculative positioning is net non-commercial positioning in gold futures markets (i.e. netting shorts away from long positions as reported by the Commodity Futures Trading Commission). Treasury yields is the nominal yield to maturity on a 10-year US Treasury Bond. Inflation is the annual growth of the US Consumer Price Index. Dollar Basket (DXY) is a measure of the value of the US Dollar against a basket of currencies (Euro, Swiss franc, Japanese Yen, Canadian Dollar, British Pound and Swedish krona). Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.
Figure 1. Gold price attribution
Gold completed a strong quarter in Q2 2024, hitting multiple new highs in April, May and July1. However, in June, the metal retreated a little as US interest rate cut forecasts were pushed out, and physical demand started to soften in response to the high prices. The rebound in July appears driven by the market’s expectations of US rate cuts becoming more optimistic once again.
However, the data that the Federal Reserve relies on to make rate decisions is rarely linear and conclusive and so there could be some choppy moves in rate expectations and gold by extension. We believe the prolonged waiting pattern for conclusive evidence for a US interest rate cut could drive a small pullback during for the metal in Q3 2024 before a rally gathers pace to drive gold to a fresh new high. The US Federal Reserve (Fed) fund futures are fully pricing in a September 2024 rate cut for the US, and the market consensus is that there will be 100 bps of cuts over the coming year. However, with the European Central Bank and several other developed world central banks having already initiated their rate-cutting cycles, the US dollar remains firm, presenting a headwind for gold in dollar terms. Thus, in Yen and Euro terms the metal is trading even higher.
WisdomTree’s internal gold model indicates that the metal was trading around fair value up until March 2024, but the rallies in April and May took the metal to a higher level. Our models, indicate that gold may be overvalued by 7% at the end of June, and our forecasts suggest that most of that will be given back in the current quarter.
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JULY 2024
New highs in sight for the metal
Gold Outlook to Q2 2025
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Source: WisdomTree, Bloomberg. Weekly data from March 1995 to July 2024. Historical performance is not an indication of future performance and any investments may go down in value.
Figure 3: Net speculative positioning in gold futures
Retail demand for gold also seems to have slowed in light of high prices, but the recent price pullback could reverse that momentum loss. In India, demand on Akshaya Tritiya (an auspicious day to buy gold, 10 May this year) turned out to be better than expected.
In China, although physical withdrawals from the Shanghai Gold Exchange slowed (indicating slower demand), flows into Chinese Gold Exchange-Traded Products (ETPs) notched new highs. That is possibly an indication that retail investors are more price-sensitive than the more professional investors using ETPs. Chinese investors have been keen buyers of gold ETPs after the real estate implosion and the patchy performance of the domestic stock market this year. Chinese retail investors have coined the term ‘financial consumers’ in a resigned apathy towards their investment prospects. Hence, gold seems to shine above other assets in terms of their opportunity set.
Chinese strength in gold ETP buying sharply contrasts the global picture, which is one of mainly selling. But the outflows from global ETPs have slowed and we are starting to see the first signs of net inflows.
Institutional sentiment towards the metal remains robust when looking at net speculative positioning in futures. This sentiment gauge has an upside risk should geopolitical risks continue to rise. Gold had not moved much in response to the shock election outcomes in India or France, but the focus is now on the US Presidential elections. Both presidential candidates are seen to be trade hawkish at this stage. We think that is negative for global growth, but that presents an upside risk for gold prices, as gold is seen as an instrument for hedging against adverse economic and financial outcomes.
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Source: WisdomTree Model Forecasts, Bloomberg Historical Data, data available as of June 2024. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties
Figure 4: Gold price forecast
Gold outlook using WisdomTree’s forecasts model
Using WisdomTree’s internal gold model3, we can produce gold forecasts that are consistent with several macroeconomic scenarios.
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Bear case
Bull case
Consensus
Our consensus scenario takes the Bloomberg Survey of Professional Economists average views on inflation, US Dollar and Treasury yield forecasts. Consensus is looking for inflation to continue to decline (and settle close to but slightly above the central bank target), the dollar to depreciate, and bond yields to decline. Consensus is based on Federal Reserve rate cuts commencing in September 2024 and ending Q2 2025 100 basis points lower than Q2 2024. So far this year, the Federal Open Market Committee (FOMC) dot plots have proven to be a better guide on policy direction than consensus or market-implied rates, but the various gauges are now converging.
Without a consensus forecast on gold sentiment, we reduce speculative positioning to a conservative 100k, which is close to the long-term average of 111k since 1995 and down considerably from the five-year average of 212k. Given the geopolitical risks mentioned earlier, the risk is clearly to the upside on positioning this year. Gold is a highly sought after asset in times of economic, financial, and geopolitical stress, and these triggers could drive sentiment towards the metal even higher.
In the consensus case scenario, gold reaches US$2,585/oz by Q2 2025, clearly above the high in May 2024, although prices may moderate in coming months before we get there.
Consensus
Bull case
Bear case
In this scenario, inflation remains stuck at a higher setting, possibly due to trade or specific commodity shocks. The Federal Reserve nevertheless commences its cutting cycle, acknowledging the sources of inflation are beyond its control and moving in a manner consistent with other parts of its triple policy mandate (i.e. maximum employment and moderate long-term interest rates). Meanwhile, a combination of elevated geopolitical risks and fears of policy errors keeps sentiment towards gold higher (expressed in speculative positioning).
In this scenario, gold could reach US$2,970/oz by Q2 2025.
Bear case
Consensus
Bull case
With the Federal Reserve reluctant to cut interest rates, inflation falls harder and faster, piecing through its target. The US Dollar appreciates, and bond yields do not fall as much as consensus currently expects. In this scenario, we also reduce the speculative positioning in gold to reflect a decline in geopolitical risks.
In this scenario, gold closes the forecast period (Q1 2025) broadly flat, but with a meaningful decline to US$1950/oz before that.
Bull case
Consensus
Bear case
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Bear case
Bull case
Consensus
Inflation forecast
Nominal 10-year yields forecast
US$ exchange rate forecast (DXY)
Speculative positioning forecast
Gold price forecast
Q3 2024
Q4 2024
Q1 2025
Q2 2025
3.0%
2.9%
2.5%
2.3%
4.33%
4.19%
4.11%
4.01%
104.8
103.6
102.5
102.2
200,000
150,000
100,000
100,000
US$2,170/oz
US$2,150/oz
US$2,440/oz
US$2,585/oz
Bear case
Bull case
Consensus
3.5%
3.5%
3.5%
3.5%
3.90%
3.80%
3.70%
3.20%
101
100
99
97
200,000
200,000
200,000
200,000
US$2,270/oz
US$2,440/oz
US$2,740/oz
US$2,970/oz
2.0%
2.0%
1.0%
1.0%
4.30%
4.30%
4.30%
4.30%
104
105
106
107
50,000
50,000
50,000
50,000
US$1,950/oz
US$2,030/oz
US$2,200/oz
US$2,320/oz
Source: WisdomTree. July 2024. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.
3 See our model described in Gold: how we value the precious metal
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Source: WisdomTree. July 2024. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.
Source: WisdomTree. Bloomberg Survey of Professional Economists. June 2024. Forecasts are not an indicator of future performance and any investments are subject to risks and uncertainties.
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Marketing communications issued in jurisdictions outside of the EEA: This document has been issued and approved by WisdomTree UK Limited, which is authorised and regulated by the United Kingdom Financial Conduct Authority.
WisdomTree Ireland Limited and WisdomTree UK Limited are each referred to as “WisdomTree” (as applicable). Our Conflicts of Interest Policy and Inventory are available on request.
For professional clients only. The information contained in this document is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities or shares. This document should not be used as the basis for any investment decision. Investments may go up or down in value and you may lose some or all of the amount invested. Past performance is not necessarily a guide to future performance. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice.
The application of regulations and tax laws can often lead to a number of different interpretations. Any views or opinions expressed in this communication represent the views of WisdomTree and should not be construed as regulatory, tax or legal advice. WisdomTree makes no warranty or representation as to the accuracy of any of the views or opinions expressed in this communication. Any decision to invest should be based on the information contained in the appropriate prospectus and after seeking independent investment, tax and legal advice.
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