Numerous researchers have projected that in 2024, the price of gold might rise. In the piece, Octa provides an explanation of the variables that will affect the dynamics of the gold price and the state of the market this year.
Africa is a major source of global gold, generating at least 870 metric tons of the precious metal – a quarter of worldwide output – in 2021. Whereas South Africa was the dominant gold producer for much of the 20th century, today gold mining is growing across the continent. The top five producers in 2021 were Ghana, South Africa, Burkina Faso, Mali, and Sudan, according to official industry figures.[4] While West Africa has emerged as a leading source of gold, countries elsewhere, such as the Democratic Republic of the Congo (DRC) and Tanzania, also have significant production. Large-scale, industrial mines, referred to as large-scale gold mining (LSGM), contribute the most significant volumes of licit gold, with the continent’s largest mines by output located in the DRC, Mali, Tanzania, and Ghana. U.S. companies are already active investors in the LSGM sector in sub-Saharan Africa, and further responsible investment in all aspects of the sector is encouraged.
Early in 2024, the price of an ounce of gold is above $2,000. Analysts predict that gold prices may continue to rise above $2,000 per ounce later in the year, setting new records. This is supported, among other things, by the geopolitical unpredictability, the probable depreciation of the US currency, and future interest rate reductions. However, we need to know how these elements have affected the past before we can depend on them in the future.
Dynamics of the gold price in a novel scenario
The number of transactions between the Eastern and Western markets has determined the value of gold for the last ninety years. Eastern nations served as the transaction’s counterparties, while Western nations set supply and demand. Thus, when the volumes of physical gold purchased by Great Britain or Switzerland increased, its price grew, and vice versa. As a result, gold moved from the West to the East and back synchronously with the price decreasing or increasing.
The correlation between the price of gold and the real yield on US government bonds is the second historical element that has affected the price. Bonds lost appeal as the real yield dropped, and investors shifted to gold instead. Investors went back to bonds when the trend changed and real yields started to rise.
But since 2022’s end, neither of the patterns has worked. Breaking a 15-year record, the yield on US ten-year bonds increased to 4.33%, surpassing the highs of 2022. The price of gold increased by 16%, from $1,643 to $1,954 per ounce, between November 2022 and August 2023, defying predictions.
The correlation between gold transaction volumes and the gold price also stopped working. Since the third quarter of 2022, the UK and Switzerland have been Netto-exporters of gold, i.e. sellers. According to the historical paradigm, this should also have been a reason for the price of gold to fall. However, as we can see, this is not happening. Thus, the West has not significantly influenced the pricing of precious metals.
What affects gold in 2024?
Escalating geopolitical conflicts are causing gold to rise in value. Due to the geopolitical events of 2022, dollar assets have become more risky for many countries. Central banks in the Global South, Eastern Europe, and the Middle East have been actively pursuing a policy of building up the gold part of foreign exchange reserves since the end of 2022. According to a World Gold Council (WGC) report, central banks bought 800 tonnes of gold in the first nine months of 2023, up 14% year-on-year. Excess demand from central banks has boosted the value of gold by 10 per cent in 2023.
The dedollarization of developing economies. Gold is viewed by investors as a different way to increase savings and hedge against inflation and exchange rate risk. The BRIC countries—Brazil, Russia, India, and China—are looking for measures to strengthen their currency independence, which is driving up demand for gold.
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