Gold Prices Surge 27% in 2024: A Year of Records and Uncertainties

Gold prices have clocked a record year in 2024, jumping by an impressive 27%. This remarkable performance has been driven by a multitude of factors, including heightened geopolitical risks, expectations of Fed rate cuts, and central bank buying. As we approach the end of the year, let's take a closer look at the key drivers behind this bullish run and what lies ahead for the precious metal.

Geopolitical tensions have played a significant role in gold's record-breaking performance in 2024. Ongoing trade disputes between major economies and political instability in the Middle East have driven investors towards safe-haven assets like gold. For instance, the death of Iranian President Ebrahim Raisi in 2024 created unpredictable consequences, leading to increased demand for gold as a hedge against risk. The World Bank predicts an average price of $2,100 per ounce for 2024, based on ongoing global uncertainty and potential conflicts, highlighting the impact of geopolitical events on gold prices.

Central bank policies have also significantly influenced gold prices in 2024. Traditionally, a weaker U.S. dollar and lower U.S. interest rates increase the appeal of non-yielding bullion like gold. However, this relationship has broken down in 2024, as gold prices have continued to hit fresh highs despite a stronger U.S. dollar and higher U.S. yields. Gold's resurgence in 2024 has come earlier than expected, with prices surging past $2,400 in April. This rally has been much sharper than anticipated, given that Fed rate cuts were priced out and U.S. real yields moved higher due to stronger labor and inflation data. Gregory Shearer, Head of Base and Precious Metals Strategy at J.P. Morgan, noted that gold's decoupling from real yields has been surprising, as the rally has coincided with these factors.

The structural bull case for gold remains intact, with prices expected to average $2,500/oz in the fourth quarter of 2024. This prediction assumes a Fed cutting cycle commencing in November 2024, which would push gold prices to new nominal highs. J.P. Morgan Research estimates that gold prices will climb to $2,500/oz by the end of 2024, with the direction of travel still higher over the coming quarters.

In addition to interest rate drivers and geopolitical concerns, there has been a reluctance by physical holders to sell gold, further underscoring its structurally bullish drivers outside of U.S. real yields. Natasha Kaneva, Head of Global Commodities Strategy at J.P. Morgan, stated that 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. These factors are likely to remain in place regardless of the U.S. election outcome this autumn.

The performance of gold prices around the first cut of the last three Fed cutting cycles in 2001, 2007, and 2019 has shown an upward trajectory. Following the first cut of each cycle, gold prices have risen, indicating a positive correlation between Fed rate cuts and gold prices. This suggests that as rates begin to fall, gold prices may experience another bullish run.

In conclusion, gold prices have surged by 27% in 2024, driven by a multitude of factors including heightened geopolitical risks, expectations of Fed rate cuts, and central bank buying. Despite the decoupling from U.S. real yields, gold prices have continued to hit all-time highs, with the structural bull case for gold remaining intact. As we look ahead to 2025, investors should remain cautious but optimistic, as the precious metal continues to navigate a complex and uncertain global landscape.