Gold prices in the international market traded near a near seven-month high level amid expectations that interest rate cuts in the US would come sooner than expected.

Spot gold traded around $2,041.76 per ounce on Thursday, after hitting its highest since May 5 in the previous session, and was poised for its second straight monthly gain. US gold futures for December delivery was around $2,042.40 per ounce level.

Analysts are bullish on the bullion and anticipate the possibility of gold rates hitting $2,400 an ounce in the year 2024 on the back of a multifaceted interplay of economic, geopolitical, and market factors.

“The volatility in gold prices has increased significantly and the yellow metal has given strong returns in the past few months. We remain bullish on gold and expect the prices to hit new highs of around $2,240 if the volatility continues. We also anticipate the prices can reach $2,400 next year if the fundamentals remain strong," said Ajay Kedia, Director, Kedia Advisory.

The projection of gold reaching $2,400 in 2024 is intricately tied to a complex web of economic, geopolitical, and market dynamics. These factors collectively paint a picture of gold as a resilient and sought-after asset, offering stability and value in the face of a myriad of global uncertainties, Kedia Advisory said in a report.

Kedia lists out certain key factors that may lead to further rally in the gold prices. 

Here are top 5 factors that are likely to support gold prices:

Interest rate cut

Gold prices are linked to US inflation rates. When interest rates are low, the relative attractiveness of non-interest-bearing assets like gold increases as the opportunity cost of holding bullion decreases.

The US Federal Reserve officials this week flagged the possibility of a rate cut in the upcoming months and expected growth to slow down and inflation to continue to ease, dragging yields on 10-year Treasury notes to a two-and-a-half month low of 4.2470%, Reuters reported.

The prospects of interest rate cuts in 2024 is a major catalyst that may contribute to upward momentum in gold prices.

Central bank buying

Gold buying by central banks around the world has been at a historic pace. The gold demand (excluding OTC) in the July-September quarter increased to 1,147 tonnes, which was 8% higher than its five-year average.

According to the World Gold Council’s latest report, central banks have bought a net 800 tonnes of gold year-to-date (YTD), the highest on record for that nine-month period.

Inflation 

Kedia believes high inflation will prevail going ahead which will support the yellow metal prices. 

Gold acts as a hedge against inflation due to its tangible value and limited supply. Traditionally, as inflation rises, the demand for gold increases, driven by investors seeking safe-haven assets. However, gold prices may exhibit fluctuations during periods of high inflation. 

“The intricate relationship between gold prices and US inflation is evident, with expectations of a rise in 2024. However, the exact trajectory remains uncertain due to the complex interplay of factors, including potential rate cuts in the latter half of 2024, adding layers of unpredictability to the gold market," the brokerage report said.

ETF, Festive demand

Kedia is of the view that the demand for gold exchange-traded funds (ETFs) along with investment and festive demand, especially in China, will also continue to support the bullish momentum in the yellow metal prices.

The demand for gold as an investment went up to 52% on a year-on-year basis in 2020, indicating that Indians are now choosing gold ETFs and Sovereign Gold Bonds (SGBs) over physical gold. The year-to-date global gold ETF holdings have decreased by 6%, while total assets under management (AUM) rose 3%, fuelled by robust gold price performance.

Dedollarization

Dedollarization is the process of reducing dependence on the US dollar as the global reserve currency and medium of exchange for international trade and investment. One consequence of divestment is increased demand for gold as an alternative store of value and as a hedge against inflation and currency risk. 

According to some analysts, this trend will continue as many countries diversify their reserves away from the dollar and into gold. One of the main drivers of gold demand is China, India, Russia, and Turkey, which buy record amounts of gold to protect their economy from dollar fluctuations and increase their financial independence. These countries are looking for ways to settle trade and investment in their own or third-party currencies such as the Euro, Yuan, or Rouble, the brokerage report noted.

The potential introduction of a gold-backed currency by the BRICS nations in 2023-24 could potentially impact the price of gold.

Overall, amid all these factors and several others, Kedia expects international gold prices to hit $2,240 an ounce soon in 2024, while MCX gold prices may touch ₹68,000 per 10 grams level next year.