Gold ETFs Near Records, But Fail to Break Out
The brief foray into record territory hasn’t altered the metal’s trajectory.
The price of gold briefly shot up to a record high last week as Fed rate cut bets picked up steam. The price of the metal reached $2,135 on Dec. 4, eclipsing its previous high of $2,075 set in Aug. 2020.
Gold ETFs, like the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU), also rallied, but fell just shy of record highs (fund management expenses eat into the ETFs’ returns over time).
But since putting in that high a week ago, gold has fallen notably—to less than $2,000—suggesting that the metal may not be ready to break out of the trading range that’s been containing it for over three years.
Most recently, rising expectations for Fed rate cuts as soon as March have buoyed the metal, and before that, Israel’s war with Hamas had provided some geopolitical support for prices.
Going forward, the trajectory of the economy may determine where gold goes from here, according to a new report from the World Gold Council.
3 Scenarios for Gold ETFs in 2024
The WGC says that historically, gold hasn’t done that well during soft landings. The same goes for no-landing scenarios where the economy and inflation reaccelerate despite high interest rates.
“A soft-landing scenario could benefit bonds and risky assets. 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 [soft landing] and decreasing in the other,” the WGC wrote.
Meanwhile, in a no-landing scenario, “while positive economic growth would support consumer demand and higher inflation would increase the need for hedges, it is likely that the combination of higher rates and a stronger U.S. dollar would create a drag [on gold], as they did in September 2023.”
WGC research shows that gold does best during sharp economic slowdowns, otherwise known as hard landings. During those periods, high risk and uncertainty cause investors to pile into gold.
“If a recession becomes a reality, weaker growth will help push inflation back towards central bank targets. Interest rates would eventually be cut in response. Such an environment has historically created a positive environment for high-quality government bonds and gold,” noted the WGC.
