Fed rate cuts could push gold prices up 20% this year, but silver will jump 48% – AuAg Fund

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Fed rate cuts could push gold prices up 20% this year, but silver will jump 48% – AuAg Fund teaser image

(Kitco News) – Although gold has started the new year on a quiet note as prices consolidate above $2,000 an ounce, one investment firm expects a sequence of new all-time highs as both gold and silver embark on a long-term bull market.

In their recently published 2024 outlook, analysts at AuAg Funds said they expect to see a 20% rally in gold prices this year, pushing the market past $2,400 an ounce.

The Sweden-based investment firm expects a shift in the Federal Reserve’s monetary policy to drive the rally in precious metals.

“We believe that central banks will shift away from rate hikes and adopt a more accommodative policy stance in 2024, which will catalyze a substantial upswing in gold prices for the foreseeable future,” the analysts said in the report.

The firm said that as the Fed leads the world in rate cuts this year, the U.S. dollar will weaken, creating another tailwind for gold.

However, gold has struggled in recent days, with prices testing support just above $2,000 an ounce as markets start to lower their expectations for a potential rate cut in March. So far gold prices have dropped about 3% since the start of the new year.

As bullish as the fund is on gold, they expect to see silver outperform this year.

“In this emerging bull market, expected to last many years, we predict the gold-to-silver ratio will drop below 30:1, setting an initial goal for 2024 at 70:1,” the analysts said. “Should gold appreciate by 20%, it would end the year at USD 2,475, and with a gold-to-silver ratio of 70:1, silver would close at USD 35, equating to a 48% return.”

As gold and silver are expected to rise, the firm said investors should also pay attention to the mining sector.

“Gold miners are historically undervalued relative to gold, a trend likely to reverse and overshoot during the forthcoming secular gold bull market,” the analysts said. “Gold miners are also historically undervalued compared to the S&P 500, presenting a unique and attractive entry point.”

With higher gold prices driving margins, the analysts noted that mining companies have healthy balance sheets. In the current environment, AuAg expects smaller and mid-cap producers to outperform the mega-cap companies.

Kitco Media

Neils Christensen

Time to Buy Gold and Silver

David

Gold holds above key support, and the tug-of-war continues

Whether you describe the underlying cause of recent changes in financial assets as a tug-of-war, double-edged sword, or battle of opposing forces, inflation versus rising rates continues to cause market sentiment to oscillate. Depending on if inflation or rates are the primary focal points of market participants. That sentiment results in bullish or bearish currents for gold and the dollar as safe-haven assets.

Today, gold traded to a high of $1850.30 a low of $1824.50 and as of 5:55 PM, EDT had a fractional uptick. Gold futures had a trading range of approximately $25 but only managed to gain $0.90 on the day. August gold futures are currently fixed at $1839.70. This could be cited as a true example of opposing forces yielding no victory for either faction. With the FOMC meeting out of the way for this month, traders are awaiting the most recent inflationary data.

Today’s fractional gains in gold prices are occurring in conjunction with dollar weakness which provided tailwinds for pricing. The dollar index lost 0.2% today and is currently fixed at 104.00. Crude oil recently has traded as high as $123 per barrel. However, oil prices have softened and are currently fixed at $104.19. While crude oil prices are certainly still elevated and above $100 per barrel, oil has retreated over 15% in the last two weeks.

On Thursday, June 30 the government will release the Personal Consumption Expenditures Price Index (PCE) for May. The CPI (Consumer Price Index) showed no indication that inflationary pressures were abating, in fact, it showed just the opposite with the inflation index running at its highest level since the pandemic at 8.6%. The most recent report for the Personal Consumption Expenditures Price Index was 6.3% in April, 6.6% in March, and 6.3% in February.

Chairman Powell refers to this index as a measurement of news headlines because it includes costs of both food and energy which is stripped out of the PCE which is a measure of core inflation. Because the tools of the Federal Reserve cannot address changes in energy and food costs the Federal Reserve prefers the PCE to the CPI.

The PCE inflation report will be a key component aiding Federal members at the July FOMC meeting as they determine potential changes in their tightening monetary policy. During the press conference of the FOMC meeting this month Powell said that it is highly likely that the Fed will raise rates by three quarters of a percent or 75 basis points once again in July.

With the latest economic outlook from the Federal Reserve indicates an economic contraction and reduced GDP coupled with a higher unemployment rate certainly opens the door for the possibility of stagflation. Next week’s PCE report will a major part of the data-dependent decisions made by the Federal Reserve.

By Gary Wagner

Contributing to kitco.com

David