Before the New Year, concerns about a recession in the United States have receded, but the U.S. economy has not yet emerged from the crisis, and the first half of the year may see slower growth than expected. According to Wells Fargo's forecasts for 2024, there is a discrepancy between economic growth forecasts and market expectations regarding interest rate cuts in the U.S. Markets are very optimistic that there will be no recession in the U.S., but the expected easing next year should be around 150 basis points.
As noted by Darrell Cronk, president and chief investment officer of wealth and investment management at Wells Fargo, these two expectations contradict each other because the Fed will not aggressively cut rates if it hampers economic growth. Next year, the Fed will cut interest rates only twice. However, according to analysts' forecasts, there is still a risk of deteriorating economic prospects. Economists suggest that either a soft landing will accelerate again, leading to increased inflation, or a soft landing will occur suddenly, and the economic downturn will expand and deepen.
Such a contrasting environment of views can create volatility in the U.S. bond markets, which, in turn, can be beneficial for gold as a means of preservation. Accordingly, investors in the first half of 2024 should take a more defensive position in their portfolios, as the real economy, driven by consumer demand, may weaken more than expected.
According to Wells Fargo, in 2024, the precious metal will trade between $2,100 and $2,200 per ounce.
In the last three years, gold has traded in a range, lagging behind other commodities, so some investors hesitate to invest in it. Nevertheless, after the indicators of the past year, investors are paying much more attention to gold. Moreover, since the Fed's tightening cycle has ended, the precious metal may strengthen its positive price dynamics in 2024. Plus, the growing debt of the U.S. government increases bond market volatility, creating additional opportunities for gold.
As gold is not anyone's liability, it is a pure instrument; therefore, as long as the U.S. government does not resolve its debts, people will need such an asset.
However, it is essential not to forget that gold is just part of a well-diversified portfolio, and investing in commodities is also an option.