Gold achieved an extraordinary performance in the first quarter of the year, surpassing its previous record and breaking the $2,200 per ounce barrier. This rally was fueled primarily by U.S. interest rate cut expectations and the metal’s appeal as a safe haven asset.
This article provides an in-depth market outlook and gold price predictions for the second quarter, examining critical market themes and key drivers that could play a pivotal role in shaping the precious metal’s trajectory.
Record high after fresh U.S. data spurs Fed cut expectations
As economic growth and inflation moderate, investors anticipate that the Fed and other major central banks will start easing restrictions in the coming months, following aggressive rate hikes in 2022 and 2023 across much of the developed world.
Bullion’s valuation has already factored in a large portion of the anticipated shift to a more accommodative monetary policy, so future upside potential may be limited. This is especially true in light of the 17% gold price increase already seen in the last six months. The FED would need to take a more dovish stance to achieve significant gains during 2024, but this seems unlikely given recent guidance and rising inflation threats.
According to the CME FED Watch Tool, investors anticipate about 75 basis points of easing from the FOMC in 2024. Gold prices might increase dramatically in the second quarter if the FOMC decides to postpone taking action because of persistent price pressure and expectations for its policy roadmap become more hawkish. Lower Treasury yields and a declining US dollar, frequently linked to the Fed lowering borrowing costs, generally help the gold market.
The below image shows the current interest rate probabilities for the next nine FOMC meetings.
FOMC meeting probabilities – Source: CME Group
Beyond the FED: Geopolitics, Central Bank Demand, China, Charts
Several factors outside global interest rates could influence the gold price development in the coming quarters. If geopolitical tensions worsen in the coming quarter, most notably those associated with the Russia-Ukraine war—that has already contributed to the precious metal’s surge in the last months may reappear as a more important source of support.
Central banks’ substantial physical gold purchases are perhaps another factor supporting the market’s buoyancy. For background, the People’s Bank of China and the Central Bank of Turkey were two active purchasers of gold during the historic pace-setting years of 2022 and 2023, when central banks bought over 1,000 tonnes of gold annually.
Due to gold’s reputation as a reliable store of value, its ability to serve as a safe haven during turbulent times, and its worth in portfolio diversification, central banks have been purchasing it at a record rate. Central banks have been carefully reallocating their reserves, shifting away from a firm reliance on the U.S. dollar, which has historically formed the bulk of their holdings, as global power dynamics change and U.S. dominance becomes less certain.
The World Gold Council‘s forecasts of the central bank’s 39-ton purchase in January and projections for the next quarters suggest that demand may be strong during the entire year. This could limit potential losses in a downward correction by acting as a buffer in a potentially bearish gold price reversal.
Central Banks’ gold buying – Source: World Gold Council
Meanwhile, In China, private investors have been attracted to gold because the real estate sector has done poorly. China’s general economy has remained weak, and its stock market and currency have not performed well.
XAU/USD’s technical profile shows an established bullish pattern of higher highs and higher lows, but caution is urged because technical indicators suggest overbought conditions. Even if they prove to be short-lived or relatively minor, corrective pullbacks frequently occur when markets become overextended in a short amount of time.
Gold Weekly Price Chart – Source: CAPEX.com
The Gold Rate Forecast: Neutral With A Watchful Eye
After significant gains in the first few months of the year, gold prices might enter a consolidation phase during the second quarter. In light of this, it seems unlikely that prices will rise sharply in either direction unless there is a sudden change in the dynamics of global inflation and interest rate expectations.
Investors should keep a careful eye on global geopolitical developments, central bank communications, the US presidential election, and economic data. These elements will offer essential hints regarding the trajectory of the precious metal in the upcoming months.
