After delivering a gain of 5.5 percent for the first half of 2023, gold is poised for continued support that could generate modest price increases in the second half of the year, according to the World Gold Council’s (WGC) mid-year outlook.
The consensus economic forecast is for a mild economic contraction in the United States, resulting from the Federal Reserve’s tightening of monetary policy. After an expected interest rates increase in late July, many economists anticipate the Fed will put its interest rate hikes on hold. In such an “on-hold” environment, gold has delivered an average monthly gain of 0.7 percent, which is equivalent to an annualized return of 8.4 percent. This analysis is based on the Fed’s hold periods in 2000, 2006-2007 and 2019.
The Fed has hit the economic brakes hard, boosting interest rates by five percent between March of 2022 and May of 2023. If that aggressive tightening has a stronger than expected impact on the economy, driving it into recession, the potential gains for gold are significant. “Historically, such periods have resulted in higher volatility, significant stock market pullbacks and an overall appetite for high quality, liquid assets such as gold,” points out the WGC. However, if the Federal Reserve continues to aggressively raise interest rates, gold could confront a challenging second half, as rising rates and a rising dollar are typically negatives for the price of gold.
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