Amid the current inflation situation, what will happen to gold in 2024?

Karl 15th Jan 2024 No Comments

Reading Time: 5 minutes

Last year turned out to be a bit of a rollercoaster ride for the price of gold. The precious metal experienced several ups and downs during the course of 2023, though ended the year 7.7% in the green.

Gold has a reputation for being a decent hedge against inflation but given the current inflation situation, is it safe to say gold is likely to slide this year? Or are other factors likely to support the value of gold in the coming months?

In this article, we’re going to dive further into how gold is likely to perform this year. Scroll down for all of the details, or click on a link to head straight to a specific section…

How did gold perform in 2023?

Will the gold price rise in 2024?

Why are defensive assets important?

How did gold perform in 2023?

Having started the year at £1,500 per ounce, the price of gold was on an upward trend in the opening months of the year, rising to £1,634 by late March. By August, however, the price of gold had fallen to below £1,500.

Since then, gold has gone on to do rather well.

In October last year, the price of gold picked up, driven partly by the conflict in the Middle East. By late December it rose further, to £1,616. This represents a 7.7% year-on-year increase which isn’t bad when you think about it. The blue-chip FTSE 100, for example, rose just 3% in 2023, while the 250 rose a misery 2.6%.

Will the gold price rise in 2024?

There are three main factors likely to have a big influence the price of gold in 2024: Inflation, the economy, and geopolitics.

So to answer the question of whether gold is likely to rise this year, you’ll need to take into account how each of these factors are likely to play out in 2024. While we don’t have all the answers, here’s our take:

1. Inflation.

A year ago, the UK inflation rate was still in double-figures (10.1%). Yet despite falling inflation at the tail end of 2023, we’re told that inflation spiked slightly in December, up to 4% compared with 3.9% reported for November (according to the Office for National Statistics).

As for this year, the Bank of England expects inflation to fall over the next 12 months, suggesting CPI inflation would hit 3.1% by the final quarter of 2024. Yet the Bank of England has been wrong many times before – so while it’s a prediction of some sort, it probably shouldn’t be taken too seriously!

Yet despite the fact that inflation is generally falling, even if it does drops to 3%-ish this year, it’s still above the Government’s annual inflation target of 2%. This is why many analysts have described the current inflation situation in the UK as ‘stubborn’.

Because high, or stubborn, inflation negatively impacts the real terms value of our money, many investors like to turn to defensive assets, such as gold, during periods of inflation.

The price of gold isn’t only impacted by the inflation rate in the UK of course. However, inflation is also stubborn in other parts of the world right now. Take the US, for instance. According to investment firm, WisdomTree, US inflation is likely to be 2.6% in Q3 2024.

If inflationary pressures continue to be stubbornly high across the world this year, this is likely to have positive impact on the value of gold.

2. The economy.

When the economic outlook is uncertain, this can have a gloomy effect on the price of equities. This is partly because businesses don’t like uncertainty as it makes it difficult to plan head.

And let’s be honest here, many of the economic problems the UK suffers from today can likely be traced back to policies implemented during the covid-19 pandemic. Furlough, quantitative easing, ‘bounce back’ loans, lockdowns – all of these polices have, in one way or another, contributed to the inflation and higher taxes we’re having to deal with in the present moment.

And even if you disagree with that analysis, there’s no denying that the UK’s economic outlook remains sluggish. KMPG, for example, expects UK growth to be just 0.5% in 2024, while even a recession is now back on the cards after it was revealed the UK economy shrank between July and September last year.

Across the pond, meanwhile, JP Morgan has suggested the US economy will grow by a modest 2% this year.

As for the global economy, uncertainty remains here too. According to the OECD, global growth is expected to fall from 2.9% in 2023, to 2.7% in 2024 with much of this growth reliant on the performance of major Asian economies.

So, given the global economic outlook is looking less than stellar right now, it’s fair to say that this could easily put some upward pressure on the price of gold going forward. Just like with high inflation, investors are often attracted to defensive assets during times of economic uncertainty. This is mostly because equity markets often suffer during challenging economic periods so many investors will do all they can to avoid being caught up in it.

3. Geopolitics.

In 2023 the conflict in the Middle East led to an increased appetite for gold in order to avoid volatility in the equity markets.

Yet the problem with understanding whether geopolitics will have a big or small impact of the price gold this year, is that it’s near impossible to predict how various global events will pan out in 2024.

In all likelihood, there will be a few global events that will take us by surprise – think of the Russia-Ukraine war for example, which looked unlikely to happen right up until the point Russian tanks entered Ukraine.

What we do know about geopolitics, however, is that there will be a US election next year and, in all likelihood, one in the UK as well (technically, the Government has until 28 January 2025 to hold one).

What this all means is that many investors will be concerned about the financial impact of any leadership changes in 2024. As we say, investors dislike uncertainty, which is why this year could turn out to be a volatile one for the equity markets.

And because, generally speaking, there’s an inverse relationship between equities and gold, it’s possible that this ongoing election uncertainty will push up the price of gold this year (at least until we know the outcomes).

Why are defensive assets important?

Holding defensive assets such as gold, Government bonds, and even cash, can help diversify your portfolio – especially if you’ve already invested in a bunch of stocks and shares.

A diverse portfolio is important as it can help minimise risks during periods of volatility, or when the stock market takes a tumble.

How many defensive assets should be in your portfolio (if any at all) will ultimately depend on your tolerance for risk, time horizon, and your wider investing strategy. To learn more about what else you need to consider when putting together your portfolio, take a look at our article that explains what is asset allocation and why it’s important.

And while’re we’re at it… do you want to learn more about investing? To keep on top of the latest developments in the investing world sign up to the fortnightly MoneyMagpie Investing Newsletter. It’s free and you can unsubscribe at any time.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. Companies listed above are not necessarily endorsed by Money Magpie. When investing your capital is at risk.