The price of gold dropped below the $2000 technical support price on February 13. The move came as a reaction to U.S. Consumer Price Index data showing a drop compared to December but still stubbornly high numbers, especially in real estate.
The price of gold dropped against the US Dollar on February 13 after the release of disappointing Consumer Price Index information in the U.S. The market had expected CPI to come in at 2.9 percent, and the data released showed CP at 3.1 percent. Despite the headline number still being a drop compared to December, at 3.4 percent, markets from stocks to cryptocurrencies reacted.
Gold below USD support level
Gold was no exception to the overall market drop, with the XAU-USD price falling below the $2000 support price and closing at a two-month low of $1993 per ounce. The metal retracted less against other currencies. Prices in British Pound and Euro hit two-week lows.
Where will gold go?
The World Gold Council is currently trying to manage expectations by pointing out that the metal’s market only responds to the first interest rate cut and produces "near-term rallies only if and when a material economic or equity correction has ensued, pushing longer maturity yields lower." While investors are nervously waiting for the rate drop, it is not a given that any initial rate drop will help support gold prices.
Central bank support
One question for gold going forward is how much central banks will be buying in 2024. World Gold Council data shows that in 2023, central banks bought over 1000 tons of gold again were only 45 tons away from the 2022 multi-decade record. The year’s purchases totaled 1037 tons, and brought central bank gold reserves up to 36,7000 tons. Will they continue this long purchasing run?
The news is mixed. China reported a 10-ton gold purchase on February 7. While this is China’s 15th consecutive month of gold purchases, it is a lower volume than in the past. Furthermore, Bloomberg reported on February 7th that Russian commercial banks had been selling gold in Turkey and the UAE as a way to work around sanctions forbidding euros and dollars from being sent to the country.
Safe Haven in 2024
One case for Gold maintaining value in 2024 would be due to increases in geopolitical tension and military action. While attacks on shipping in the Red and Black seas make headlines, the need for a safe haven in the form of gold is low. There is the more worrisome possibility of Chinese attacks on Taiwan as well as a Russian invasion of the Baltic countries or across Poland to establish a land corridor with the current exclave of Kaliningrad. As the World Gold Council puts it: "The general level of uncertainty is poised to keep some investors with one hand on their gold."
