Gold (XAU/USD) dipped below $2,000 for the first time since December 2023. Economists at MUFG Bank analyze the yellow metal’s outlook.

Gold's resiliency intact despite hot US inflation dampening Fed rate cut expectations

Gold prices have remained in consolidation form as hotter-than-expected US inflation has dampened hopes for a rate cut in the first half of 2024. Beyond the sticky inflation reading, elevated yields have found further support following the recent FOMC meeting – removing the tightening bias with Fed Chair Powell signalling that a March cut ‘is probably not the most likely case’.

Whilst higher for longer rates is bearish for noninterest-bearing bullion, we hold conviction that the other two channels that are central to our bullish 2024 Gold view remain intact, namely, robust EM central bank purchases on reserve diversification and its role as the geopolitical hedge of last resort.

With Gold prices now flirting below the $2,00 handle, we acknowledge downside risks to our constructive $2,350 year-end forecasts. However, we continue to recommend leaning long Gold and view any sell-off as a buying opportunity in an environment with elevated risk dimensions (geopolitics, recession repricing) which play into Gold’s favourable hedging qualities.