INDUSTRY UPDATE
Q1/24 PRECIOUS METALS PREVIEW; INCREASING NEAR AND LONG-TERM GOLD PRICE DECK
THE TD COWEN INSIGHT
Ongoing central bank buying, safe haven flows, and physical demand driving gold higher
— Q1 saw a record high quarterly gold price of $2,072/oz (Q4/23: $1,979/oz). Following very strong central bank buying in 2022 and 2023, central bank accumulation remains elevated (and non-price sensitive) and a key contributor to the recent gold price strength. Despite somewhat weak ETF demand (Figure 2), we believe retail demand for physical gold (particularly into Asia) has been a source of strength as well.
We have raised our near-term precious metals price deck to reflect the recent strength; while acknowledging that we could be due for a minor correction in the short term. Gold does not typically perform well when real rates are elevated or rising. TD's Commodity Strategy team cites the Fed's willingness to accept higher inflation as a key catalyst for this year's ~$300/oz gold rally. Higher inflation expectations have offset the fact that the probability of early Fed cuts has been greatly reduced. We would have expected delayed cuts to put pressure on gold and see potential for a modest near-term correction before reaching higher highs of above $2,450/oz in Q4. We have raised our forecasted average 2024 gold price to $2,293/oz (previously $2,100/oz).
We have raised our gold price deck by an average of 19%, including raising our long-term price to $2,000/oz (from $1,750/oz). With gold finally breaking free from the $2,000/
oz level, we believe the floor price for gold is being reset higher and that investors will increasingly value gold equities accordingly. Historically, the U.S. Fed rate cycle has been a significant factor driving the gold price. Over the past 40 years, gold has increased an average of 32% during an easing cycle following the last rate hike of a tightening cycle
vs. an average of 7% during periods of tightening (Figure 4). TD's Global Rates team is calling for 50bps of cuts in 2024, and 100bps of cuts in 2025. We continue to expect a Fed pivot will support higher gold prices, and see geopolitical risk and U.S. election politics as potential tailwinds.