The Impact of Soft Landings and Recession on Gold Prices

by Warren Seah

The World Gold Council (WGC) has provided insights into the potential impact of a soft landing in the U.S. economy on gold prices in 2024. Despite expectations of rising inflation and interest rates, the WGC suggests that gold prices may suffer if a soft landing occurs without any significant negative consequences.

Historically, soft landings have not favored gold, with prices either remaining steady or declining. However, the WGC remains uncertain about the inevitability of a soft landing and posits the possibility of a mild recession. “It’s not going to be a straight line,” says John Reade, the chief market strategist at the WGC. “There will be periods of both faster and weaker U.S. economic growth throughout the year.”

Interestingly, a mild recession in the U.S. could potentially provide the strongest outlook for gold. In times of economic uncertainty, investors often seek refuge in precious metals, such as gold. Reade acknowledges that another factor supporting the price of gold would be a reduction in interest rates by the Federal Reserve.

Reade notes how crucial U.S. monetary policy and economic outlook are to the performance of gold. Although the specifics of rate cuts are uncertain, as long as they materialize, gold is expected to fare well.

In summary, the interplay between gold prices and the U.S. economy is expected to hinge on whether a soft landing or a mild recession occurs. Regardless, gold remains a dependable asset within the global market landscape, primarily influenced by U.S. economic conditions and monetary policies.

Gold Prices Surge as Traders Seek Safety

Prices of gold have reached an all-time high as traders flock to the precious metal in anticipation of earlier-than-expected rate cuts from the Federal Reserve. Additionally, a weaker dollar has boosted gold prices, which closed at an impressive $2,047.90 on Wednesday, reflecting a nearly 10% increase this quarter.

Market Outlook: Interest Rates and Gold Positioning

Market outlook indicates that approximately five interest-rate cuts are being priced in for next year. This presents an opportunity for investors to strategically position themselves in the gold market once the rate cuts are initiated. “Once you have the beginning, people will be able to pick a trajectory,” states an analyst.

Impact on Physical Gold Buying

If gold prices continue to remain volatile, it is expected that physical gold buying will be negatively affected, particularly in regions like India, the Middle East, and China where price sensitivity plays a significant role among gold buyers.

Central Bank Activity: Strong but with Uncertainties

While central bank buying of gold is expected to continue its accelerated pace, uncertainties loom regarding whether it will match the levels seen in the last two years. In 2019, central banks bought a record 1,136 metric tons of gold, and it remains uncertain if this record will be broken again this year.

Geopolitical Risk and Gold Support

The World Gold Council (WGC) predicts that geopolitical risks will continue to bolster the demand for gold. In recent times, events such as regional banking crises and conflicts like the Israel-Hamas war have sparked higher gold prices. Additionally, upcoming elections in the U.S., Taiwan, and India are seen as reasons to include gold as a hedge within investment portfolios.

“The world remains volatile and jittery,” acknowledges an analyst.

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