A number of investors have chosen to include gold in their portfolios because it has a proven track record of performing well during economic downturns, potentially helping to offset losses from other more volatile assets.
For instance, in a World Gold Council survey, central banks cited gold’s performance during times of crisis and its status as an inflationary hedge as two of the key reasons they’ve been interested in purchasing the precious metal. Investors would do well to consult with experts like Gainesville Coins for solid information on the market.
In recent months, the U.S. economy has been fairly strong. Gross domestic product, a frequently utilized economic indicator, rose at a 3.4% pace between October and December 2023, according to the Department of Commerce, and both consumer spending and Americans’ disposable income increased in February. As of April 16, the economy was growing at a 2.9% rate, according to the Federal Reserve Bank of Atlanta.
While it’s not uncommon for gold to perform well during positive economic periods as well as challenging ones, prices for the precious metal have hit a remarkable number of new highs since late 2023.
After rising to $2,135 per ounce in December 2023 an unprecedented level for the metal gold prices reached an even higher point, $2,222, on March 21. Gold then increased to $2,305.04 on April 4, and following a new high of $2,364 on April 9, gold prices climbed to a record level of more than $2,400 an ounce on April 12.
What May Be Next for Gold
Low interest rates can equate to an increased interest in gold, according to Everett Millman, a precious metals specialist at Gainesville Coins.
“Gold tends to do well when interest rates are low because it doesn’t have to compete as hard with assets that do offer a yield or dividend,” Millman explains.
Gold’s recent rally, however, has occurred during a period in which interest rates have been sky-high. Interest rates rose as the Federal Reserve made a series of increases to the target range for the federal funds rate — the interest rate banks use to lend each other money, which in turn influences consumer borrowing costs in 2022 and 2023 to meter inflation.
Since September, the Fed has held the range at 5.25% to 5.5%.
Reductions to the federal funds rate’s target range are anticipated this year; the Fed’s “dot plot” matrix, an anonymous tally of Federal Open Market Committee officials’ expectations, suggests three cuts will occur in the remainder of 2024, according to Yahoo.
If gold follows the trajectory it’s taken at times in the past, that could “be like rocket fuel for precious metals,” Millman says, especially if the rate cuts are made in response to economic concerns.
“If central banks are easing monetary policy [and] cutting interest rates, that is a signal about how they expect economic conditions to unfold,” the Gainesville Coins precious metals specialist says. “It’s usually a sign they’re trying to stimulate or cushion the economy from a recession. The fear of recession is a big driver for gold prices — because [gold] is a safe place to park your money, in the event assets like equities are not performing as well.”
Published by: Holy Minoza
