The 2024 U.S. Economic Outlook and What It Means for Gold

Looking back, 2023 may well be remembered for the recession that never happened. But, looking forward into 2024, what is the economic forecast for the coming year and what could it mean for gold?

Many hope that 2024 will be the year of the “soft landing” for the U.S. economy. Just like Goldilocks and her porridge a soft landing would mean the Federal Reserve handles inflation and interest rates “just right”—and the economy emerges not too hot and not too cold. The Fed is walking a tightrope and needs to thread a needle to succeed. Let’s explore some of the dynamics at play.

The Consumer Makes the U.S. Economy Go Round

When you buy a home, the mantra in real estate is location, location, location. When it comes to the U.S. economy, the consumer is the primary engine for growth. After all, consumer spending makes up nearly 70% of Gross Domestic Product (GDP). Yet…

Americans Take on More Debt

While the economy continued to grow and Americans kept buying in 2023, they did so using borrowed money. In the back half of 2023, the U.S. personal savings rate fell from 4.9% to 3.8% by end of the year.

So, as Americans saved less, they continued spending, and racked up more credit card debt, which climbed above $1 trillion—all all-time record high in 2023. While the spending keeps the economy growing for now, Americans are seeing their unpaid bills pile up, and they will eventually face a reckoning.

Inflation Is Lower: But the Fed’s 2% Target May Remain Elusive

The Consumer Price Index (CPI) closed out 2023 with a 3.4% annual increase, which marks progress from the Dec. 2022 CPI reading at 6.5%. The road to target 2% inflation has been a long and bumpy ride for the Fed, and the journey isn’t over yet. The so-called “last mile” of the inflation fight could be the hardest—returning to the 2% level—especially with interest rate cuts in the forecast for this year.

Slowing Growth

Wells Fargo has removed a recession forecast from its 2024 outlook, but nonetheless, economists there estimate the probability of a U.S. recession remains at roughly 40%.

J.P. Morgan economists forecast that U.S. growth will slow to 0.5% by the second quarter of 2024, which will force the Fed’s hands to begin cutting interest rates. The reasons? The impact of monetary policy (high interest rates) will take a bigger toll, and the post-pandemic tailwinds will fade, they say.

Interest Rate Cuts Ahead

The slowing U.S. growth will force the Fed’s hands to lower interest rates, even though inflation still remains above target. The central bank will begin to slash interest rates to help prevent a potential recession.

By how much and when? Wells Fargo projects that the Fed will cut its target range by 125 basis points by the end of 2024 and by a total of 225 bps by the end of 2025. The firm expects the first rate cut of the easing cycle will occur at the May 1 Fed meeting.

The 2024 Washington Wildcard

Last but not least, looming on the horizon later this year, is the 2024 November presidential election. A contentious battle for the White House is already heating up, and Americans can expect an advertising blitz from both parties. In the midst of this, the divided government could result in a shutdown. Other key policy risks lie the U.S. deficit, which continues to expand and government spending, which will keep markets uncertain and demand for gold high.

Gold Poised for More Record Prices in 2024

Gold was one of the top performing asset classes in 2023, climbing 14.6% on the year. Gold’s performance beat other commodities, bonds, cash, and emerging stocks. The key drivers for the strong gold performance last year included persistent central bank buying, robust retail demand, and increased geopolitical risk which drove fresh safe-haven buying of the metal.

Looking into 2024, gold is expected to benefit from falling U.S. interest rates, slowing U.S. growth and a weaker U.S. dollar. Economic and geopolitical uncertainty are expected to keep demand for gold high in the year ahead, as investors trust in the precious metal’s ability to act as a reliable store of value and protect wealth. Its low correlation to other asset classes like the stock market means gold can act as insurance during down stock markets and other geopolitical events and crises.

How high can gold climb? J.P. Morgan forecasts new record highs for gold, with prices reaching $2,300 an ounce by 2025. Other firms agree that fresh gains are ahead for gold. UBS strategists predict that gold prices could close out 2024 as much as 10% above late January price levels on the back of potential interest rate cuts. “Ongoing macro and elevated geopolitical risks continue to justify holding exposure to gold for hedging and diversification purposes, in our view,” UBS said.

Are your finances prepared for what may lie ahead? Call Blanchard today for a personalized portfolio review and take action to protect and grow your assets in the year ahead.

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