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According to the World Bank's commodities review, geopolitical instability, as usual, has influenced the gold market: demand for safe-haven assets can lead to even higher prices, as any potential escalation in the conflict between Israel and Hamas will create further chaos in the Middle East.
On Monday, the International Monetary Fund published a forecast for the commodity market, stating that in 2024, average gold prices will rise by 6% before the market cools down in 2025.
The report states that the conflict in the Middle East could lead to increased global uncertainty. If the conflict escalates, it will have significant consequences for precious metal prices.
The World Bank's optimistic gold forecast is based on their analysts' belief that the ongoing conflict will have a broad impact on commodity markets, from energy to agriculture. The escalation of the conflict poses a significant risk to commodity markets, as a substantial share of global oil supplies comes from the region.
Supply disruptions and spikes in energy prices will affect other commodities due to higher production costs, rising food prices, metals, and so on.
Although geopolitical demand for gold as a safe haven has never been a consistent driver for the precious metals market, the World Bank analysts noted that this time could be different.
Regarding how the new chaos has affected gold, as the World Bank pointed out, despite prices falling to a seven-month low, gold ended the third quarter with a 3% loss. However, since the beginning of October, prices have risen by more than 8%.
Despite the intense conflict in the Middle East, the prices of the precious metal have been weighed down by the aggressive monetary policy of the Federal Reserve, which plans to continue with the same policy.
The hawkish stance of the U.S. Central Bank has led to the 16-year bond yields approaching 5%, and the dollar has risen to nearly a yearly high.
According to analysts, the recent divergence between gold prices and the yield of 10-year inflation-protected Treasury securities suggests that geopolitical risks and economic uncertainty have outweighed the influence of high interest rates on the cost of holding gold.
The World Bank is optimistic not only about gold but also about silver, believing that prices should continue to rise until 2024.
According to analysts, silver will rise by 8% in 2023, prices will remain stable in 2024, and only in 2025 will they decline. This is because concerns about inflation and recession will subside, and economic recovery will take place.
In 2024, prices remain stable due to relatively high investment demand. Industrial demand for silver continues to be supported by growing demand related to electrification of transportation, solar photovoltaic products, and electronics components. Nearly half of silver consumption is related to industrial activity.
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