Gold and silver ingots of various sizes lie in a safe on a table at the Pro Aurum precious metals dealer in Munich.
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Gold and silver are expected to rise further in 2024 on expectations that the US Federal Reserve will begin cutting interest rates, UBS predicts.
“We expect gold to be pushed higher by Fed easing. That also comes with a weaker dollar,” said Joni Teves, precious metals strategist at the investment bank, who expects the metal to reach the $2,200 an ounce by the end of the year.
Gold prices tend to have an inverse relationship with interest rates. As interest rates fall, gold becomes more attractive compared to alternative investments such as bonds, which would produce weaker returns in a low interest rate environment.
In turn, lower rates weaken the dollar, making gold cheaper for international buyers, driving up demand.
While there is still much uncertainty about the timing and extent of rate cuts, UBS maintained its expectations that the Federal Reserve will ease monetary policy. Last week, the Fed announced its decision to leave rates unchanged in January, as well as shooting down hopes of a rate cut in March.
In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a move in gold.
Bullion’s appeal as a safe haven has increased since Israel’s war with Hamas began on Oct. 7, helping gold prices hit an all-time high of $2,100 an ounce last month.
“We believe investors will begin to increase allocations to gold in an environment characterized by a lot of macroeconomic uncertainty [and] geopolitical risks,” Teves said.
The outlook for gold’s “poorer cousin” is also optimistic, with silver on track to “really, really shine.”
Silver is not as common a geopolitical and security haven compared to gold, which partly explains why it has underperformed gold in recent years, the strategist said. But the situation could turn in his favor when the Fed eases monetary policy.
“In a scenario where the Fed is easing, we think silver can do really well. It tends to outperform a gold move,” Teves said. “Silver has underperformed gold quite a bit. So there’s a lot of catching up to do and I think the move could be quite dramatic,” he added.
Silver’s performance is closely tied to the health of the overall economy due to its broad industrial applications. The precious metal is commonly incorporated into the manufacturing of automobiles, solar panels, jewelry, and electronics.
Gold it last traded at $2,052 an ounce, while silver was priced at $22.69 an ounce.