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The “DOT PLOT”, which predicts three interest rate decreases in 2024, remains intact despite Fed Chairman Powell’s news conference being somewhat more hawkish than his statements in December. This is seen by market players as dovish.

He stated, “Inflation data haven’t really changed the story,” during a press conference. He noted that although there are bumps in the path, inflation is gradually declining.

Interestingly, of the seventeen, ten believe it will be below 4.5%, nine expect two cuts or over 4.75%, and one believes it will be below 4.5%.

I would like to add that by the end of the year, I am expecting 2 interest rate cuts of 50 basis points (25bp each).

There’s no denying that this is an upgraded forecast. It suggests that the pace of cutbacks, which will be mostly data driven, would be slower than previously projected.

The solid labour market, increased growth, and recent spike in inflation have not changed the opinions of Fed members.

The market players responded violently. Gold gained most. The stock market surged, the US Dollar declined and there was a significant decline in Treasury yields.

Why does gold stand to gain the most?

My January 2, 2024, OUTLOOK 2024, which was carried by Business Recorder, included a target of $2,220–40 for the year. However, the aim is reached far sooner than I had anticipated.

The science of understanding the gold’s upward trend is straightforward.

One of the main factors that contributed to the hold-up was the ongoing geopolitical turmoil, when Russia invaded Ukraine in February 2022.

The ongoing conflict between Russia and Ukraine drove gold prices up. The conflict in the Middle East last year further helped gold to surge.

However, two significant nations that favour cash buying of gold to meet their currency needs are Iran and Russia.

China has long been one of the biggest purchasers of yellow metal. Turkey’s gold reserves have also expanded recently. India has been increasing its gold reserves for more than ten years.

Significantly, though, the demand is derived from international central banks that build their foreign exchange reserves. The preference and goal of central banks is to hold onto certain proportions of their reserves.

The percentage of the world’s reserve currency that is in USD is 59%, followed by the Euro at 19.8%, and the remaining amounts in Yen, Pound Sterling, and Chinese Yuan, etc.

The GDP grows, which leads to an increase in the size of the economy and foreign exchange inflows. As the demand for gold rises, central banks seek to preserve equilibrium by dividing currencies and gold proportionately.

It’s also because physical demand rises in tandem with population expansion.

As a result, I anticipate that gold will peak between $2260 and $2290 in the medium term for one correction. The drop and break of $ 2110 will only open gates for $2048. However, a move above $2310 could push it further up to $2410.

Copyright Business Recorder, 2024

Asad Rizvi

(The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper)

He tweets @asadcmka

Comments

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Atif Mar 22, 2024 11:00am
Great Analysis as always, however don't you think if in actual there will be less than 3 rate cuts then bond yields will keep floating above key 4% level.
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Atif Mar 22, 2024 11:00am
& will weigh on gold prices & gold can correct even deeper specially if there is any peace deal in Russia-Ukraine conflict and middle east, in case Trump is able to win U.S. Presidential elections.
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