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Gold Is Experiencing One of Its Most Dramatic Rallies in History. Here’s Why.


Written by Philip Diehl

Feb 22, 2024

Here’s some news I bet you haven’t heard: In one of the most dramatic rallies of all time, gold prices rose almost $260/oz. over the span of just 11 weeks late last year. That amounts to a gain of 14%, which if annualized, comes to an appreciation rate of 70%. In 11 weeks.

Gold doesn’t get the financial news coverage it deserves.

The following graph tells the story of the forces that fueled this extraordinary rally. It’s an important story because I believe the same forces will drive gold prices for the foreseeable future.

Gold Spot Price August 2023-February 2024

Two major factors sent gold to record highs in 2023: good news regarding the U.S. economy and war fears abroad.

Bullets on $100 notes

Let’s start on September 20 of last year, when Federal Reserve chair Jerome Powell poured cold water on market speculation that the Fed had finished raising interest rates. He made it clear that the fight against inflation wasn’t over. As you can see, gold fell by $100/oz. following his comments.

Then, on October 7, Hamas attacked Israel, and gold reversed course, surging more than $170/oz. over the next three weeks until the situation seemed to stabilize and profit-taking set in.

The rally in gold prices resumed on November 10 when the U.S. Bureau of Labor Statistics reported that Consumer Price Index (CPI) numbers showed no increase in inflation in October. Markets viewed this as the first definitive sign that the inflation dragon had been slain. On this good news, gold surged again, rising $132/oz. over the next three weeks and setting a new all-time high.

The tug of war between market hopes and economic reality continued. In early December, the Fed renewed signals that expectations for the timing and aggressiveness of rate cuts had become too optimistic, and right on cue, gold fell by $90/oz. But by mid-month, new economic data reinforced market sentiment that inflation had been tamed, and optimism returned.

Analysts concluded that the Fed would start cutting rates no later than March 2024 and would make as many as six or seven cuts before the end of the year. These expectations sent gold prices soaring to another all-time closing high of $2,078/oz. on December 27, 2023.

You can see that prices fell off that high but stabilized above $2,000/oz. when, once again, Fed chair Powell dampened expectations that rate cuts would come as early as March and that the Fed would reduce them more than three times in 2024.

Then last week, the government released another set of CPI numbers. But this time the numbers suggest that inflation remained higher than markets had hoped, and gold prices sank below $2,000/oz.—but not for long. Within 48 hours, prices had rebounded back above $2,000/oz.

So over the last five months, the story of gold prices has been written by two main forces: expectations surrounding inflation and interest rates and war. The net effect of all these price movements has been a rally of almost $200/oz.

I believe the story will be much the same in 2024.

Interest rate expectations and war fears will drive prices once again. But a third factor will enter the equation this year: U.S. elections and the possibility that the next presidential inauguration will be fiercely contested up to—and perhaps beyond—Inauguration Day 2025.

I expect gold price surges to accompany at least three interest rate cuts this year. Wars in the Middle East and Europe are intensifying, which also seems certain to boost gold. War fears may spread to Asia as well, fanned by Chinese aggression in the South and East China Seas and by continuing threats from North Korea. Finally, anxiety about our politics is likely to drive safe-haven gold demand in the United States and around the globe, especially toward the end of the year.

While these three forces—falling interest rates, rising war fears, and U.S. political chaos—will be the headliners in 2024, two other long-running factors will continue to play supporting roles for gold: central bank gold buying, which we’ve discussed at length elsewhere, and retail demand in Asia, which hasn’t received the attention it deserves.

The subject of the Asian gold market is too big to address now. But here’s a practice we can learn from Asian buyers: Buy on price weakness.

Here in the United States, we tend to buy on strength—when prices are rising. In Asia, buyers more often act when prices are falling, especially when they’re falling during overall rallies.

That’s exactly where we are today. Prices are down about $60/oz. in the midst of a strong rally, but interest rate cuts are clearly visible on the horizon, geopolitical tensions are rising, and rough air lies ahead in U.S. politics. With all these forces aligned to move gold, this rally has a long way to go.


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