Historically, gold has tended to rise at the extremes of the economic cycle. Either during a recession, when the yields on Treasury bonds and the U.S. dollar fall in anticipation of substantial monetary stimulus from the Federal Reserve. Or when the U.S. economy overheats, inflation is high, and gold demand as a safe-haven asset increases even more. Neither of these scenarios, at first glance, seems applicable to XAU/USD in 2024, although the situation can turn upside down at any moment.

Despite the Federal Reserve's efforts to convince investors of its ability to achieve a soft landing for the United States, UBS and Morgan Stanley still predict an economic downturn in the U.S. next year. UBS does not rule out a reduction in the federal funds rate as early as March, with a subsequent decline by 275 basis points to 2.75% by the end of 2024. In contrast, Goldman Sachs estimates the chances of a recession in the next 12 months at 15% and expects a reduction in borrowing costs only in the fourth quarter of next year by 25 basis points.

Such divergence of opinions increases uncertainty and prompts investors to increase the proportion of gold in their portfolios. Moreover, central banks are actively diversifying their assets as part of the de-dollarization process. In 2022, they acquired 1136 tons, and from January to September added another 800 tons. Taking the lead is the People's Bank of China, which purchased 181 tons of precious metal over the last three quarters, bringing its reserves to 2192 tons. Despite gold's low share of 4% in the total gold and foreign exchange reserves, it creates room for maneuver and will continue to support the bulls in XAU/USD.

The share of gold in central bank reserves

China is the world's largest consumer of precious metals. The premiums of $100 per ounce in prices on the exchanges in Shanghai and London this fall indicate high domestic demand. Historically, the Chinese paid attention to real estate and bank deposits as capital preservation instruments. However, the real estate market crisis and the People's Bank of China's interest rate cuts led them to turn to gold. This trend is likely to continue in 2024.

Finally, the rise in XAU/USD quotes will be influenced by political uncertainty. About half of the world's population will elect their leaders next year. Special attention should be paid to the elections in Russia, Taiwan, Mexico, and the United States. Political risks will boost demand for safe-haven assets, including precious metals.

If derivatives are correct, and central banks led by the Federal Reserve start lowering interest rates en masse, it will undermine confidence in fiat currencies. The bulls in XAU/USD will benefit from this.

Technically, on the gold's daily chart, there are attempts by buyers to restore the upward trend. Updating the October high near $2010 per ounce will activate the AB=CD pattern with a target at 161.8%, or $2060, allowing the accumulation of long positions in gold formed from levels $1976 and $1981.