The World Gold Council released its 2024 gold outlook, emphasizing the significance of monetary policy alongside geopolitical risks and central bank purchases as pivotal factors to monitor in the upcoming year.
Geopolitical tensions and ongoing central bank purchases are anticipated to bolster gold in 2024. Despite gold’s exceptional performance in 2023, surpassing expectations amidst high interest rates, the World Gold Council underscores the strategic importance of investing in gold moving into the new year.
| Economic Scenario | Soft landing | Hard landing | No landing | Colour Key (Effect on Gold) |
|---|---|---|---|---|
| Probability | 45%-65% | 25%-55% Opportunity cost | 5%-10% | Positive |
| Drivers of Gold | Opportunity cost | |||
| Economic expansion | Opportunity cost | -55% | Positive | |
| Risk and uncertainty | ||||
| Momentum | Risk and uncertainty | Momentum | Neutral | |
| Risk and uncertainty | Risk and uncertainty | Momentum | Negative | |
| Momentum | Momentum | Flat with upside potential | Neutral | |
| Notably higher (above record) | Notably higher (above record) | Negative | ||
| No landing | 5%-10% | Opportunity cost | Economic expansion | Positive |
| Risk and uncertainty | Risk and uncertainty | Momentum | Neutral | |
| Momentum | Momentum | Flat with initial downside pressure | Negative |
This table outlines different economic scenarios, their respective probabilities, drivers of gold, implied gold performance, and the color key indicating the effect on gold prices.
In its 2024 outlook released recently, the WGC highlighted heightened geopolitical tensions during significant election cycles across major economies. This, coupled with sustained central bank buying, is anticipated to fortify the position of the precious metal. Moreover, uncertainties persist around the Federal Reserve’s attempt to guide the US economy to a stable state with interest rates hovering above 5%. The likelihood of a global recession remains plausible, incentivizing investors to seek effective hedges like gold in their portfolios.
The WGC report delineates three potential global economic scenarios influencing gold’s trajectory in 2024. The market’s consensus of a “soft landing,” orchestrated by the Fed, is viewed positively but requires precise execution and factors beyond direct control. Historical data shows such soft landings are rare, with the Fed achieving this outcome only twice in nine tightening cycles over the past five decades. The alternative— a “hard landing”—remains a plausible second scenario.
Crucially, the transition from a soft to a hard landing hinges on the labor market. Despite low unemployment in the US, factors that bolstered it in 2023 are waning, raising concerns about swift shifts historically observed in such conditions.
A less probable scenario, the “no landing,” implies reaccelerated inflation and growth, driven by US manufacturing rebounds and real wage recoveries. However, this is perceived more as an interim state, poised for potential shifts. While historical data suggests flat to slightly weaker gold performance under the first and third scenarios, current geopolitical risks and central bank demand provide additional support for gold. The looming possibility of a recession further strengthens the argument for maintaining a strategic allocation to gold in investment portfolios, according to the report’s conclusions.