The international gold price is on a ＂roller coaster＂, and this precious metal has greater rising potential next year？

Recently, the international gold spot and futures market prices have hit record highs, which has aroused widespread concern in the market. On December 4th, new york gold futures and London spot gold both broke through the $2,100 mark per ounce, with new york gold futures hitting a record high of $2,152.3 per ounce and London spot gold hitting a record high of $2,144.68 per ounce.

However, in the following trading days, the price of gold showed a high downward trend, and the upward price appeared to be powerless. As of the close of the 7th, the most active February 2024 gold futures price in the New York Mercantile Exchange gold futures market fell by $1.5 to close at $2,046.4 per ounce.

Some analysts said that considering that the current inflation in the United States is still resilient, it is difficult to start the interest rate cut cycle in the first quarter of next year, and the US bond issuance in the first quarter of next year is still at a historical high, thus limiting the downside of the US bond interest rate, and the gold price may face callback pressure in the short term.

"In the short term, we are still cautious." Highfill, chief investment director of UBS Global Wealth Management, explained to the First Financial Reporter that the market’s bet on the Fed’s interest rate cut next year may be over-optimistic, and the hedging premium brought by geopolitical risks may be further digested. In addition, the further rise of gold may need to see the continuous net inflow of funds into gold exchange-traded funds (ETFs).

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The medium-term prospects are still optimistic.

Nevertheless, Highfill is optimistic about the medium-term prospects of gold. Looking forward to 2024, UBS believes that the gold price will look at $2,250, and the Fed’s narrative will turn to easing and cutting interest rates, which will further open up the upside of gold prices.

"The trend of gold after the Palestinian-Israeli conflict supports our view that gold is an important asset for medium and long-term capital allocation. We believe that in a balanced investment portfolio, the proportion of gold allocation in the middle single digits is appropriate." Highfill thinks that when the price of gold falls below $2,000, it is an opportunity to further invest in gold.

In November, the trend of international gold price first suppressed and then rose. At the beginning of the month, the market’s risk aversion to the Palestinian-Israeli conflict gradually cooled down, and the safe-haven premium of gold began to ebb. Even in the context of the downward fluctuation of the US dollar index, the price of gold still showed a high downward trend. After the safe-haven premium was digested, the downward trend of the US dollar index and US bond interest rates pushed up the price of gold as the inflationary pressure in the United States in October eased more than expected and the superimposed economic momentum slowed down.

On November 14th, data released by the US Department of Labor showed that inflation cooled down more than expected. In October, the consumer price index (CPI) in the United States dropped from 3.7% in the previous month to 3.2%, which was lower than the market expectation of 3.3%. The chain was flat, the smallest increase since July 2022. At the same time, the core CPI excluding food and energy decreased from 4.1% last month to 4.0%, lower than the market’s previous forecast of 4.1%; The chain rose by 0.2%, the smallest increase since July this year.

In October, housing fell to 0.3% month-on-month and 6.7% year-on-year, which is still at a high level. From the historical experience, the rent price involved in housing CPI is often sticky, lagging behind the house price for one to two years. On November 29th, S&P CoreLogic Case-Shiller national house price index data showed that house prices in 20 cities in the United States rose by 3.9% year-on-year in September, and it has been 19 months since the peak in April 2022.

Analysts said that with the Fed raising interest rates and shrinking the table, the 30-year mortgage interest rate in the United States soared to over 7% at the end of October last year, and rose to over 7.0% again in August this year. Under the pressure of high interest rates, the housing breakdown is expected to continue to improve in the fourth quarter, which will further ease inflationary pressures.

The resilience of the labor market is the basis for American residents to maintain their spending power, and it is also the key to the resilience of inflation. Recently, a number of data show that the US job market has obviously cooled down. On December 6th, the American private sector (ADP) employment report, known as "small non-agricultural", showed that the number of new jobs in ADP was lower than expected for four consecutive months in November, and the number of new jobs was revised down in October, while the wage growth rate in November hit a new low in more than two years.

All these have enhanced investors’ expectations for the Fed to cut interest rates next year. In addition, the tone of Fed officials’ speeches has eased recently. In his latest speech, Waller, a Fed governor who has always been "hawkish", mentioned the possibility of starting to cut interest rates after inflation continues to return, which triggered the market’s pricing of early interest rate cuts, driving the real interest rate and the US dollar to fall back at the same time, which boosted the gold price.

Nicky Shiels, metal strategist at MKS PAMP, said: "Gold has become a barometer reflecting the Fed’s interest rate cut expectations and market risk aversion."

Regarding the reasons for the recent rise in gold prices, analysts also believe that there are factors such as the wave of gold purchases by the central bank and the safe-haven premium brought by the geopolitical situation.

Aakash Doshi, head of commodity research in the Americas at Citigroup, said that despite the rapid rise in interest rates, the purchase by central banks was the key reason why the value of gold remained strong last year.

Is there more potential for silver prices to rise?

However, unlike the central bank’s continuous gold purchase fever, the global gold ETF has flowed out of 189 tons since the beginning of the year, and it has shown a net outflow trend for six consecutive quarters, which of course caused some investors’ concerns.

At the same time, analysts said that as the anchor of short-term pricing of gold prices, the US bond interest rate currently lacks the conditions for a downward trend. Therefore, there is a high probability that the price of gold will remain high in the short term.

Suki Cooper, an analyst at Standard Chartered Bank, said: "In the past two years, the gold market has always rushed to the monetary policy shift.Although we expect the Fed’s next move will be to cut interest rates, we don’t think it will happen soon. "

In contrast, analysts believe that,The price of silver is still seriously undervalued. With the improvement of risk appetite, silver is more elastic as a "shadow of gold" than gold and silver. And historically, it has outperformed gold in the gold bull market.

On the 7th, the price of silver futures for delivery in March 2024 closed down 16.9 cents to US$ 24.059 per ounce, and the ratio of gold to silver was 85:1, which was still at a high level in history. Looking back on the trend of gold-silver ratio in recent 50 years,The duration of high gold-silver ratio is limited, and most of the time fluctuates between 40:1 and 60:1.In 2011, the ratio fell to 30:1, and in 1979 it fell below 20:1.

Peter Schiff, chief economist of Euro Pacific Asset Management, said that at the current price, silver is really cheap, the price of silver is obviously undervalued, and the market supply and demand deficit is serious. "I think silver is especially in a good opportunity for allocation, because gold is at a record high, and silver must double to hit a record high. This shows that silver is very cheap. " He said.

Indeed, from the perspective of supply and demand dynamics, according to the latest forecast of Oxford Economic Research Institute, the demand for silver in industrial applications, jewelry production and silverware manufacturing is expected to nearly double in the next 10 years.

In 2022, the demand for silver set a record in all categories. At the same time, the output decreased slightly by 0.6% to 822.4 million ounces, resulting in a market deficit of 237.7 million ounces last year, which is the second consecutive year. The Silver Research Institute predicts that the demand will reach 1.17 billion ounces this year, while the estimated supply is 1.02 billion ounces. Although this will reduce the gap to 142.1 million ounces, it will still be the second largest deficit in more than 20 years.