Gold has enjoyed a tremendous first half of 2024. After challenging $2,000 on the downside in February, the price for an ounce of gold briefly challenged $2,400 at its peak in April. The reality is that the move above $2,000 and then to $2,400 lifted the gold market to all-time highs. There is a significant chance that gold could surge to above $2,500 in 2024 — and the $3,000 level is not hard to fathom in the not-so-distant future.

Earlier in 2024, it seems that U.S. interest rates and inflation had peaked. There are still dual conflicts between Israel and Palestine and between Russia and Ukraine. And the U.S. debt of more than $34 trillion and deficit spending as far as the eye can see are adding to the arguments that hard assets can be a safe haven for investors and savers alike.

It is a strong time to consider where the price of gold should go from here. The $2,500 per ounce case is already strong for gold. That might only take just one more “issue” to rattle the markets. And this longer-term view for gold to reach $3,000 per ounce is no longer hard to fathom at all. It is even possible that gold could hit $3,000 within a few years to come to fruition. There are, of course, no guarantees that this plays out. It just looks and feels like the cases for $2,500 and even closer to $3,000 may now be closer than ever.

THE TACTICAL BULL VIEW

The view of Tactical Bulls is that the near-term gold price pressure is more likely to be higher rather than lower. Again, no assurances. The data seem to support the odds of gold remaining above $2,000 per ounce as higher than gold’s chances of falling back under $2,000.

The bullish case for gold can always change. A drop in commodity and asset prices could pull gold back down. A longer expected delay to U.S. interest rate cuts could interfere with a bullish view. And a sudden de-escalation in geopolitical risks could all work against the bullish case for gold. And what if central banks cease or slow their recent gold-buying sprees? Or what if investors sell gold to fund Bitcoin and other asset prices in large numbers?

Tactical Bulls is incorporating multiple factors into the outlook here. Interest rates and inflation are mandatory considerations. The near-term and long-term chart expectations have to be considered. Gold production costs must be considered as well. And lastly, what about outside views on the price of gold?

INTEREST RATES VS. INFLATION HEDGE

A key driver for gold prices is the direction of global interest rates. If interest rates are rising in an orderly fashion, then gold is generally considered second-fiddle because investors can earn interest in the bonds and notes rather than receiving no interest payments from gold. The general belief is that global interest rates, particularly in the United States and Europe, peaked and are poised to drift lower in the second half of 2024 and in 2025. How much remains to be seen.

Many investors consider gold to be a hedge against inflation. If prices are rising in general, the price of gold is supposed to offset the loss of purchasing power versus paper money. It is an important admission that it’s not always the case for gold to rise because of inflation. “Hedging” against that inflation is still a constant point brought up as one of the key reasons to invest in gold.

CHARTS & TECHNICALS

Chart analysis is supposed to act independent of fundamentals and forecasts. The price of gold has managed to stay above the $2,000 per ounce mark for almost all of 2024. This has represented a technical breakout for chartists. Breakouts tend to lead to higher forecasts and higher spot prices. This is almost the same as stocks that hit a 52-week high tend to make higher highs before settling down.

Gold hit a low of nearly $1,800 in the second half of 2023 after having established the same support levels earlier that year. And gold’s chart peak was closer to $2,070 per ounce in 2023 as well. A simple inversion of this trough to peak would put a gold target above $2,300 with a lot of expected pullbacks along the way. Is that why gold petered out at $2,400? As long as $2,025 to $2,050 are not breached then technicians will likely maintain that gold’s chart continues to point higher. How much higher is only going to be know once it’s actually seen.

THE HIGH COST OF GOLD PRODUCTION

One key factor for any commodity is how much it costs to produce the said commodity. Gold mining is expensive and any forecasting revolves around certain market assumptions.

Newmont Corp. (NYSE: NEM) is said to have the largest gold and copper reserve base in the industry with a whopping $41 billion market cap. At the end of 2023, Newmont said that it had gold reserves of 135.9 million ounces and that the Newcrest acquisition accounted for 44 million additional ounces of gold reserves in 2023. Newmont is only using a $1,400 to $1,600 per ounce assumption for its operating forecasts ahead. According to S&P data from 2023, Newmont’s all-in sustaining cost (ASIC) was shown to be $1,376 per ounce of gold.

A $100 increase in gold price would result in an approximate 5% increase and a $100 decrease in gold price would result in an approximate 6% decrease in Newmont’s gold reserves. Those sensitivities at the start of 2024 assume an oil price of $75 per barrel, and set U.S. assumptions at Australian dollar exchange rate of $0.70 and Canadian dollar exchange rate of $0.75.

Newmont’s key North American competitor is Barrick Gold Corporation (NYSE: GOLD) with a $28 billion market cap. Barrick’s ASIC was listed nearly the same at $1,370 per gold ounce. S&P’s table showed one producer with costs as low as $882 per ounce and one other producer as high as $1,658 per ounce.

While the cost of production is dependent on factors such as wages, oil, exchange rates and transportation costs, gold miners used to have all-in sustaining costs under $1,000 per ounce. With higher production costs, gold miners and producers would likely start to consider curtailing production if gold prices were to fall handily below the more recent floor of $1,800 per ounce. And if gold prices were to somehow go back under $1,500 to $1,600 per ounce then some would even be forced into a decision to cease production altogether. A lower gold supply, assuming demand remains relatively stable, would ultimately result in higher gold prices all over again according to classical economic supply/demand metrics.

OUTSIDE VIEWS ON GOLD RISING

The World Gold Council noted that the People’s Bank of China outpaced all central banks buying gold in 2023. Additionally, the WGC’s 2023 forecast had predicted that 24% of central banks intended to increase their gold reserves in the next 12 months. What is amazing about the rise in gold is that this was during a time when global gold ETFs saw their ninth consecutive outflow in February (-$2.9 billion).

In the last week of March/2024, both BofA and Goldman Sachs both gave strong support for gold targets. Goldman Sachs analysts weighed in on gold and commodities expecting the rally to continue. The first issue was cyclical support with expected rate cuts coming in June adding further support for commodities demand and prices. The firm also noted positive structural factors citing in a broader metals call (copper and “green metals”). A third boost is from geopolitical factors, namely Gaza and Ukraine, which may limit commodity supply. At the same time, BofA projected that gold prices should rise to $2,500 or $2,600 (per ounce) noting that central bank buying is key and that gold is an attractive portfolio hedge for equity investors.

At the start of 2024, J.P. Morgan Gold issued its forecast that gold prices will peak at $2,300 in 2025 assuming a Federal Reserve rate cutting cycle of 125 basis points over the second half of 2024. J.P. Morgan also noted ETF flows and central bank buying as key demand drivers on top of gold’s inverse price relationship with falling interest rates.

Newmont’s price target cuts had been numerous in 2023 and in 2024, but as its own stock bottomed and then recovered many analysts raised their U.S. stock price targets for Newmont have stopped coming down very much. TD Securities even raised its U.S.-listed target price to $48 from $43 on Newmont in April. BMO Capital Markets had also raised its targets on gold miners such as Alamos, Lundin, and Royal Gold at the end of March. Higher price targets never seem to act as a result of lower price expectations.

Commerzbank noted on March 15 that gold futures trading higher were just below the record price as gold likely reflects a “pricing-in” that the Federal Reserve is more cautious with no interest rate cut expectations until the middle of 2024. That timing may have been pushed out but gold was still hanging above $2,300 as of May 6, 2024.

TACTICAL BULL CONCLUSION

Any additional international surprises that fall under “geopolitical risks” could drive the price of gold much higher in 2024. The two regions in current wartime strife do not seem as though they want to end abruptly. The China-Taiwan issue isn’t going away.

Central banks have been buying gold aggressively. The government deficits of the U.S. and other major economic powers, combined with runaway debt loads, may only force more gold buying by central banks to keep international markets happy.

And any cooling of inflation leading to more rapid rate cuts could all act as a further support for gold buying as gold with no dividend would be less uncompetitive to dividends and interest payments. There are no assurances that $2,500 and even $3,000 gold are certain outcomes. Still, the price of gold was only about 4% shy of the $2,500 mark in the last month or so. And the cost of adding new gold in the total supply via mining isn’t getting cheaper.