Gold Outlook Q4 2024

What drove gold in Q3?

Gold’s additional gains we saw in the third quarter were largely driven by falling bond yields and weakness in US dollar, after initially being supported earlier this year amid inflation-hedging demand. Protection against loss of value of fiat currencies, owing to years of high inflation, also encouraged large central bank purchases. As Q3 started, we saw bond yields started to fall across the world, as central banks either started cutting interest rates or, in the case of the Fed, provided strong hints that looser policy was on the way. Bonds rallied, causing their yields to fall, boosting the appeal of assets with low or zero yields, like gold and silver. Additional support came from haven demand amid the ongoing situations in Gaza and the Middle East, and Ukraine.

Gold forecast remains modestly bullish in final quarter of 2024

The Fed potentially accelerating its rate cuts, coupled with ongoing central bank gold purchases and mild support from the US elections, are among key factors that could help drive gold to new highs, while geopolitical risks continue to underpin its haven demand. But profit-taking could limit the upside potential.

Fed could accelerate rate cuts

In Q4, many of the existing fundamental drivers of gold will remain in place from earlier this year, with the bulk of the focus shifting to central banks’ rate cutting cycle. We expect US inflation will continue to drift lower towards the Fed’s target, while the unemployment rate climbs to less-than-ideal levels. This will encourage the Fed to loosen its policy, potentially by around 100 basis points for 2024 as a whole, after its initial 50 basis point cut in September. The pace of the Fed rate cuts could even accelerate in early 2025, if the jobs market slows down even faster than expected. Expectations of accelerated rate cuts could further weaken bond yields and underpin gold prices this quarter.

The FOMC’s latest forecasts from their September meeting shows the central bank expects the unemployment rate will rise to 4.4% from 4.2% by year-end and stay there for nearly 2 years. As such, it envisages a further 50 basis points of cuts this year, totalling 100 for 2024 as a whole, with a further 100 bps of cuts to come in 2025, followed by 50 bps in 2026. At that pace, US interest rates will be around 2.75 to 3.00 percent by 2026, which is still in the restrictive territory. Thus, if the unemployment rate continues to climb as the labour market weakens, market pricing of those cuts will surely increase, putting the pressure on the Fed to lower interest rates faster and in more stimulative territory.

Meanwhile, the yellow metal may also continue finding support from multiple other sources.

Among these factors would be further interest rate cuts and expectations thereof from other major central banks around the world, such as the BoE and ECB. Indeed, if inflation returns to target sooner, then the current state of the world economy, especially the Eurozone, requires much looser policy. If we do see an acceleration in the rate cuts, then this could further propel gold in the months ahead.

Will central bank gold purchases continue?

Another source of support for gold could come from continued physical buying by the People’s Bank of China and other central banks. Despite rising prices, the World Gold Council reported that in July net purchases by central banks more than doubled from June to 37 tonnes, reaching the highest monthly total since January when purchases had totalled 45 tonnes. Central banks in Poland, Uzbekistan and India were the leading purchasers in July. This comes after central banks had added 1,037 tonnes of gold in 2023, the second highest annual purchase in history after a record 1,082 tonnes were purchased in 2022. While the record-high gold prices might discourage central banks to add more to their reserves, they will likely hoard their existing stockpiles (and thus restrict supply), especially in a climate where geopolitical tensions don’t seem to be fading any time soon.

Impact of US elections on gold forecast

The outcome of US elections may have some implications on gold via the US dollar. Our base case scenario is a win for Kamala Harris with a split Congress. In this potential scenario, we will likely see less tax cuts than under Donald Trump’s presidency, and more tax rises from 2026. The fiscal restraint could hold back the economy, and potentially dampen inflation than would be the case under Trump. Meanwhile, a more certain trade backdrop should alleviate pressure on currencies where Trump had plans to introduce more tariffs on, including the yuan and euro. This outcome should therefore be negative for the US dollar, while the stronger yuan should mean higher demand from the world’s largest gold consumer. However, a Harris win will likely result in reduced haven demand for gold, everything else being equal. So, on a net basis, the impact of US elections on gold could be temporary and, in any case, limited.

Gold technical analysis and levels to watch

In addition to the abovementioned macro influences, momentum buying by traders trying to take advantage of rising prices may also see even more speculative interest in gold in Q4 after ETF inflows and net long positions surged further in August. Demand for gold-backed ETFs has been strong in recent months, with CFTC data showing inflows for four months in a row, largely thanks to Western funds. Against this backdrop, the prospect of gold reaching $3,000 is not unrealistic, although the potential road to that target could be a bumpy one as is often the case in a rising trend. For us, a more realistic near-term target is now around $2,700 to $2,800 – the next round handles now that the psychologically-important $2,500 has been taken out and $2,600 has been tested.

Indeed, the underlying technical trend has been quite strong on gold throughout the year with minimal pullbacks.

Source: TradingView.com

At worst, we have seen occasions where gold has been contained in consolidation inside continuation patterns for several weeks, before breaking out. While gold could top out at any moment, especially with the long-term charts being in overbought territory (RSI > 70), we would continue to favour looking for bullish setups on the dips near support or after a multi-week consolidation period than looking for bearish setups. Still, those overbought conditions need to be addressed at some stage, either through price action (in other words, a correction) or, ideally, time (meaning consolidation) to help maintain the bullish gold forecast intact.

In terms of key support levels to watch, $2500 is now the most important short-term zone that the bulls need to defend. In addition to being a prior resistance level, the 2024 bullish trend line also converges around this area. Below this level, $2400 is the next potential support, followed by $2300. In the event of a major correction, we don’t expect gold to break below its long-term support seen around the $2075 area.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on X: @Trader_F_R