Major Bank Raises Gold Targets $200, Still Below Current Price
Gold Outlook for 2024
Authored by GoldFix ZH Edit
Find attached our coverage of HSBC’s 2024 Gold report subtitled "Fed Up". The section on Central Bank demand is a must-read and tells a story of the changing culture at global central banks. Slides are also broken out with analysis added at bottom.. Enjoy
Contents:
- HSBC Price Target for 2024 is still below current prices… but
- The tighter US financial conditions are, the more likely gold is to weaken and vice versa… but
- The Higher Real Yields Go, The Lower Gold is Supposed to Go… but
- Mercantilism, Deglobalization and declining trust means more gold... and
- US Investors Are Buying Less Gold in ETF and Futures form… but
- High prices will likely curb Jewelry demand this year… but
- China Imports are Decreasing and India May have peaked… but
- US Gold Coins and Bar Demand are cooling…but
Slide Deck Analysis
1- HSBC Price Target for 2024 is still below current prices… but
COMMENT:
“We raise our 2024 and 2025 forecasts to USD1,947/oz (from USD1,850/oz) and USD1,835/oz (from USD1,725/oz). We look for a wide trading range of USD1,825/oz-USD2,200/oz for 2024.”
The Bank continues to lag price and use average prices for their analysis. This makes sense as they are historically conservative. The fact that this bank, which is careful in their price targets raised them $100 per year is information enough.
2- The tighter US financial conditions are, the more likely gold is to weaken… but
COMMENT:
The report states: Broad financial conditions still remain tight which does not favor gold. Which is true.
Financial Conditions—The FCI measures liquidity. The looser Financial conditions are, The higher Gold goes legend has it. Tight FCI often is bearish for gold also according to legend. HOWEVER: The FCI dipped significantly in 2022 (blue arrow). What did Gold do? Continues...
3- The Higher Real Yields Go, The Lower Gold is Supposed to Go… but
COMMENT:
Higher rates are supposed to compete with Gold for investment, and that has been correct historically. Currently, the potential problem with this correlation is it assumes Gold is only bought by Americans. If 2023 taught us anything, that is simply not true. Americans reduced exposure to Gold as the financial correlation implies. The Rest of the World however, doesn’t care as much about US rates as it used to. Conversely, we also believe the correlation is not broken but rather creating a new balance that takes into account the reality that UST are in a possibly permanent disinvestment cycle as Globalization gives way mercantilism and multipolarity. TS Lombard agrees:
TS Lombard also contends those correlations are neither broken nor destined to re-converge as robustly as they had in the past.
From Gold, The Everything Hedge
Gold hasn’t decoupled from yields and the dollar, but the beta has decreased. While a gap has opened up, this does not mean the relationship has broken down. The negative correlation of both pairs has become more negative than the historical average
Continues...
4- Mercantilism, Deglobalization and declining trust means more gold... and
COMMENT:
Continues...
5- US Investors Are Buying Less Gold in ETF and Futures form… but
COMMENT:
Continues...
6- High prices will likely curb Jewelry demand this year… but
COMMENT:
Continues...
7- China Imports are Decreasing and India May have peaked… but
COMMENT:
The report states: “The latest official customs data for November show mainland China imported 61.8t from Hong Kong and Switzerland. This represents a massive 20% decrease from the 51.7t imported in November 2022… Although clearly strong in 2023, we are not overly optimistic on China’s imports”
That is because they are getting it elsewhere.
Continues...
Central Banks: The Defining Factor
[EDIT- This part makes the whole report, must read]
The near sea-change in central bank gold activity in the last couple of years has had a profound influence on the gold market. After a long period of declining interest in holding bullion, the opposite trend has emerged. The official sector has emerged once again as powerful participants in the bullion market and gold is enjoying a renaissance among reserve managers.
After years of playing a relatively secondary role, central banks moved center stage in 2022 purchasing 1,082t of gold that year, more than double the previous year, according to the IFS (see chart 12). This represented the highest level of purchases since 1968, helping to take gold above USD2,000/oz. We discussed the reasons for central bank demand extensively in previous Outlooks and cited academic research providing a rationale for official sector purchases in Gold Outlook: Banking on gold (12 April 2023). These reasons merit revisiting.
These include:
◆ Portfolio diversification.
◆ Risk reduction.
◆ International payments.
◆ Emergency funding.
◆ Legacy.
◆ Prestige.
Continues w/ full report here