In 2023, gold didn’t just perform — it dazzled.
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Gold’s price hit a record high of nearly $2,150 an ounce, later stabilizing around $2,050. This peak, fueled by factors including Middle East tensions, anticipated U.S. interest rate cuts and a weaker dollar, confirms gold’s role as a reliable asset in uncertain markets. Despite its significant rise, coverage remained minimal, mainly highlighted by gold enthusiasts.
Looking ahead to 2024, the impact of the global economic climate on gold remains a key focus.
Spotlight’s back on the Fed
Today, most economists are predicting a modest recovery year for 2024, with most countries growing below their historical average GDP growth rates:
The expectation right now is for 2024 to feature a “soft landing” coming out of the high inflation environment of 2023. This could cover anything between the positive but below-average growth depicted above and a mild recession.
But take note, the Fed historically has not had the best track record of managing a soft landing following a rate hike cycle:
With a soft landing, the impact to gold would be neutral to slightly positive. Reduced economic uncertainty could diminish gold’s appeal as a safe haven, but market confidence and anticipated Fed rate cuts in 2024 might boost its attractiveness.
On the other hand, a hard landing — traditionally the case with the Fed — would lead to a recession. In this case, heightened uncertainty and decreased appetite for risk could drive investors to flock to gold. In addition, a hard landing would justify additional Fed rate cuts, fanning the flames for higher gold prices.
A hard landing could push gold prices up – potentially to new record highs. So you need to be prepared. If a roaring bull market sends the gold price above $2,200 for any period of time, look out.
In either case, Fed policy would play a key role in deciding how the situation plays out.
For the markets, being at the mercy of the Federal Reserve is a familiar story.
Follow where gold is going
Now, let’s look at trends in gold demand.
Despite gold’s strong performance in 2023, gold bullion ETFs saw significant outflows, exceeding $13 billion through the beginning of December. Most of these outflows came from European funds, which saw an 11% drop in demand over the past 12 months. Asian funds, on the other hand, grew their gold holdings by 14.6% from the beginning of the year.
Central banks were large buyers throughout the first nine months of the year.
Given the high inflation rate environment that began in the latter half of 2022, central bank gold purchases were the highest they’d been in over a decade last year. Year-end numbers aren’t out yet, but as of September, central banks’ gold buying was on par with 2022, indicating sustained interest in the metal.
Landing the biggest returns
Overall, gold’s price performance in the coming year will largely be determined by the quality of the landing. While a soft landing would require less easing from central banks and leave gold largely flat — albeit with upside potential — a harder landing would see gold going higher.
A recession in the U.S. – or even a global recession – isn’t entirely out of the books yet. Even with markets roaring. If that happens, expect to see gold establish new record highs. Even $2,500 wouldn’t be entirely out of the question if things continue to get worse globally.
But given how much gold they’ve been loading up on, central banks certainly aren’t taking any chances. In that regard, China, Poland, and Singapore led the way as the top buyers of 2023.
Kazakhstan was the only major seller of note – though as we’ve previously noted, they have a “SUR” thing of their own to bet on, which had an incredible 2023.
Over the coming months, we’ll be keeping a close eye on inflation, unemployment, and of course, potential Fed rate cuts.
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