Dawn of a New Era on the Markets: What Are the Prospects?

Gold Price Outlook Amid Economic Uncertainty

In recent months, gold has continued to gain ground, driven by a series of factors that are creating increasing economic instability.
Among these factors, the realignment of currency reserves by BRICS countries, the depreciation of the dollar, concerns about an economic slowdown, and rising economic instability stand out.
These elements are likely to continue to generate market uncertainty and impact the price of gold going forward.

A Closer Look at the BRICS Countries

One of the main drivers of this growth is the massive gold purchases by central banks, especially those of BRICS countries (Brazil, Russia, India, China, and South Africa).
These countries are gradually offloading US government securities, particularly Treasuries, in favor of gold.
In 2023 alone, BRICS countries sold US Treasury securities worth over $120 billion, with China leading this trend by selling $117.4 billion.
This shift towards gold reflects a reserve diversification strategy aimed at reducing dependence on the US dollar, increasingly seen as a source of economic vulnerability.

The Impact of the Weakening US Dollar

The depreciation of the dollar is playing a crucial role in supporting the price of gold.
This depreciation is partly fueled by the “carry trade” issue with Japan, which is currently leading to forced selling of Treasuries, creating a negative wave in the currency market.
Another crucial factor is the increase in concerns about a hard landing of the global economy, a sharp economic slowdown.
These fears are driving investors to seek refuge in safe assets like gold.
Not surprisingly, the market is currently discounting the possibility of nearly five interest rate cuts by the Federal Reserve in 2024, with further cuts expected until 2025.
With the reduction in government bond yields, gold becomes even more attractive, especially because a decrease in yields also tends to weaken the dollar, making gold more affordable for foreign investors.

What to Expect from Gold?

Historically, gold has always benefited from situations of instability, as investors consider it a safe haven asset in times of crisis.
The increase in volatility in financial markets and growing concerns about a global recession are driving more capital towards gold, further strengthening its price.
This trend is particularly evident from a graphical perspective: the price of gold (XAUUSD) has increased by almost 20% from the lows of 2024.
This performance is remarkable, considering that over the past decade, gold has shown relatively moderate fluctuations, until recent developments reignited its volatility.