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Gold Investing 'Still Favored' as US Fed Tries to Cool 2024 Rate-Cut Bets

GOLD PRICES held steady above $2020 on Monday despite several policymakers from the Federal Reserve pushing back on financial-market expectations that the US central bank will begin its 2024 interest rate cuts as early as March, writes Atsuko Whitehouse at BullionVault.
Gold prices in the US Dollar edged up 0.2% to $2023 per ounce after rising 1.2% last week on the Fed's sudden 'pivot' on 2024 interest-rate cuts, when Fed chair Jerome Powel also signalled that recession rather than inflation is now the US central bank's major concern.
"[While] investors' sentiment has broadly shifted from one of pessimism to fully embracing the possibility of a 'soft landing' for the global economy," says UK portfolio manager Chris Forgan at US financial giant Fidelity, "we still favor a position in gold due to its defensive nature."
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Historically, the Fed has managed a soft landing only twice following 10 tightening cycles over the past five decades, with economic recessions – marked here by the vertical gray bars – following on all other occasions, including the Covid Crash of 2020 which followed the late 2010s' 'normalization' from zero to 2.40% per year.
Chart of US economic 'soft landings' vs. recessions after Fed rate hiking cycles since 1970. Source: St.Louis Fed
The fact that the other seven Fed hiking cycles, like the pre-Covid rate rises, ended in a recession "is not all that surprising" given that "when interest rates stay higher for longer, pressure on financial markets and the real economy generally builds," says a 2024 outlook from the mining industry's World Gold Council.
The Fed funds rate rose from 0.1% in February 2022 to a 22-year high of 5.33% in July 2023 – the fastest pace of rate rises since the early 1980s – where it again stayed for the 3rd meeting in a row last week as the Fed projected slower GDP growth and rate cuts for next year.
US unemployment has meanwhile held steady between 3.4% and 3.9% while the personal consumption expenditures measure of inflation – excluding food and energy – reached as high as 5.5% per year in February 2022 and fell to 3.5% in October.
The Fed's preferred measure of inflation, the core PCE gauge for November will be released this Friday, forecasted to show another slowdown to 3.4%.
Projections from the Congressional Budget Office (CBO), released on Friday, meantime say US economic growth will slow from 2.5% per year in 2023 to 1.5% in 2024, while the unemployment rate is projected to rise to 4.4% from the current calendar quarter's 3.9% average.
"We aren't really talking about rate cuts right now," said senior US policymaker John Williams, President of the New York Fed, on Friday, repeating Fed chair Powell's protestation that rate cuts aren't yet being discussed despite the median forecast from Fed officials now projecting 3 cuts for 2024.
"It's premature to speculate on them."
"Policymakers still need several months to accumulate enough data and confidence," agreed Atlanta Fed President Raphael Bostic, also speaking on Friday, and looking for inflation to "continue to fall before moving away from the policy rate's current 5.25%-5.50% range." 
Bostic thinks the central bank won't begin reducing interest rates until "sometime in the third quarter" of 2024, with only 2 cuts coming in total next year.
Markets are however still forecasting a 3-in-4 chance of a Fed rate cut in March, with 2-in-3 positions foreseeing 5 cuts or more by the end of 2024, according to CME FedWatch tool.
"It is still too early to declare victory on the US achieving an economic soft landing," said Chicago Fed President and CEO Austan Goolsbee on Sunday, saying that there are still numerous concerning data points.
Gold priced in Euros meantime edged lower 0.1% to €1853 as the Euro strengthened further against the US Dollar after ECB policymaker Bostjan Vasle, Slovenia's central bank governor, told Reuters that "Market expectations for interest rates cuts are premature in my view, both with regard to the start of cuts and the totality of moves" following last week's 'no change' decision for the 20-nation currency zone.
The UK gold price in Pounds per ounce edged higher 0.3% to £1598 and gold prices in Yen terms rose 0.6% to ¥9291 per gram – holding over 20% higher for 2023 so far – as the Japanese currency dipped ahead of the Bank of Japan's policy announcement on Tuesday, widely expected to address if not adjust its negative interest-rate policy, now the only such policy in the developed world.
Silver edged higher 0.2% to $23.92 per Troy ounce, holding on to last week's 3.8% gain, while fellow industrially useful precious metal platinum rose another 0.6% to $950 after adding 0.8% last week.
The price of palladium – of which Russia is the No.1 miner – also edged higher, adding another 0.3% to 3-month highs of $1180 per ounce after surging 25% last week as the UK government targeted Russian metals but not palladium with new sanctions, according to Bloomberg. 

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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