Gold Outlook 2024, World Gold Council: In its Gold Outlook for 2024, the World Gold Council (WGC) highlights three probable scenarios for the global economy, each carrying distinct implications for gold. The market consensus leans towards a ‘Soft Landing,’ with a 45% to 65% probability, which is seen as positive for the global economy but potentially negative for gold.
This scenario could result in flat or negative returns for gold, though geopolitical risks and central bank actions may offer some support. Notably, the report does not dismiss the possibility of a world economic recession.
Let’s delve into the three scenarios and their potential impact on gold:
1. Soft Landing (45% – 65% Probability):
Expected Fed funds rate: Current 5.25% – 5.5%; 4.50% by year-end.
Opportunity cost: 10yr remains stable, marginally down 10yr, or slightly higher.
Dollar: Expected to be flat to slightly down due to normalization.
Economic expansion: Below trend growth.
Risk and uncertainty: Inflation decreases, nearing the target, with a risk-on positioning.
Momentum: Central bank purchases continue at or above trend, commodities experience a marginal decline, and gold net positioning rebounds.
Implied gold performance: Flat with upside potential.
2. Hard Landing (25% – 55% Probability):
Expected Fed funds rate: Maximum 5.5%, significantly lower by year-end.
Opportunity cost: Lower 10yr, with the dollar up as a safe haven.
Economic expansion: Severe downturn.
Risk and uncertainty: Inflation drops below 2%, risk-off positioning, heightened geopolitical risks.
Momentum: Central bank purchases continue but below trend.
Implied gold performance: Notably higher, potentially exceeding previous records.
3. No Landing:
Expected Fed funds rate: 5.5% – 6.5% by year-end.
Opportunity cost: 10yr slightly higher, with the dollar up on US exceptionalism.
Economic expansion: Surprising growth continues.
Risk and uncertainty: Inflation reaccelerates, increased market volatility, geopolitical risks.
Momentum: Central bank purchases continue but at or slightly below trend, commodities rebound, and gold net positioning rebounds.
Implied gold performance: Flat with initial downside pressure.
Investors are urged to carefully consider these scenarios, recognizing the potential impact on gold and adjusting their strategies accordingly in the dynamic landscape of 2024.
