A spate of general elections that are scheduled for next year, including in India, the US, some countries in the EU, and Taiwan, is likely to drive up investors’ need for portfolio hedges, driving up the demand for gold, the World Gold Council (WGC) suggested in its outlook for next year.
This year so far, heightened gold purchases by global central banks contributed to an at least 10% rise in gold prices, a trend that is expected to persist in the new year, WGC said.
The high probability of an impending recession also makes the case for maintaining a strategic allocation to gold in investor portfolios, the gold industry body added.
“Gold had a strong 2023, defying expectations amid a high interest rate environment, and outperforming commodities, bonds and most stock markets,” WGC’s report said.
Market consensus is currently expecting a ‘soft landing’ in the US, a scenario that is likely to have a positive impact on the global economy. In such environments, where the economy slows down enough to curb inflation but avoids a recession, gold historically hasn’t been especially attractive, often leading to flat or slightly negative average returns.
But each cycle is unique, the report said, pointing out that this time, factors such as heightened geopolitical tensions in a key election year, along with persistent buying by central banks, could offer additional support for gold, potentially altering its typical performance in a ‘soft landing’ context.
In a ‘soft-landing’ scenario, bonds and risky assets could gain as a combination of optimistic consensus earnings expectations and the allure of high interest rates particularly enhance the appeal of bonds, WGC said.
“This is consistent with historical evidence, with both bonds and stocks performing well in the two previous ‘soft landings’. Gold, however, has not fared as well – increasing slightly in one and decreasing in the other,” it added.
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