By Yusuf Khan
Gold prices are likely to take a hit if the U.S. economy achieves a so-called soft landing in 2024 and avoids a recession, despite rising inflation and interest rates this year, according to the World Gold Council.
In its 2024 gold outlook, the industry body said the market is currently anticipating a soft landing for the U.S. economy–in which inflation falls without any significant negative side effects–which should boost the global economy with it. Based on past data, soft landings generally haven’t benefited gold, with prices either holding flat or falling.
However, the WGC isn’t confident that a soft landing is inevitable and says a mild recession is still very much in the cards. “It’s not going to be a straight line,” John Reade, chief market strategist at the WGC, said in a call. “Parts of the year will see faster U.S. economic growth and weaker U.S. economic growth.”
The strongest outlook for gold would be a mild recession in the U.S., with investors driving to the precious metal as a haven, Reade said. However, gold will likely rise when the Federal Reserve cuts interest rates, he said.
“It’s a reflection of how important U.S. monetary policy and the U.S. economic outlook is to gold,” Reade said. “The speed and timing [of rate cuts] is uncertain but as long as they come down, gold will be OK.”
Prices recently hit a record high as traders rushed toward the yellow metal on the prospect of earlier-than-expected rate cuts from the Federal Reserve. A weaker dollar has also helped gold, with prices closing on Wednesday at $2,047.90, up nearly 10% this quarter.
The market currently is pricing in roughly five interest-rate cuts for next year, according to Reade. Investors will likely be able to position for gold when the Fed starts to cut. “Once you have the beginning, people will be able to pick a trajectory,” he said.
Meanwhile, physical gold buying will likely take a hit if prices remain volatile, especially in places such as India, the Middle East and China where physical buyers of gold are more price sensitive, Reade said.
Central bank buying is likely to remain accelerated though whether it keeps pace with the last two years remains uncertain, he said. Central banks bought a record 1,136 metric tons of gold last year and could be set to break that record again this year, according to the WGC.
Geopolitical risk also should furnish some maintain for gold, the WGC said. This year, the regional banking crisis and Israel-Hamas war both sparked higher prices for gold, it said. Reasons to have gold within a portfolio as a hedge include upcoming elections in the U.S., Taiwan and India, according to the WGC.
“The world remains volatile and jittery,” Reade said.
Write to Yusuf Khan at yusuf.khan@wsj.com
