Several elements — including the overall state of the economy — are poised to potentially impact the demand and price for gold, silver, and other precious metals in 2024.
You might not be surprised about one of them. Says Gainesville Coins precious metals specialist Everett Millman, a significant factor is “certainly people’s anxieties and fears about economic conditions. I don’t want to make much of a value judgment here, but I think some of it is based on the way that the financial news media and just the broader news media covers the economy.
“If it bleeds, it leads, so a lot of the negative stories, a lot of the things that spark those fears and anxieties, those do lead people to looking toward alternative assets, things that are safe.”
What the Fed Says
Decisions that the Federal Reserve’s Federal Open Market Committee makes about the target range for the federal funds rate, for instance, could heighten the interest in precious metals.
In 2022 and 2023, the FOMC made a series of increases to the federal funds rate’s target range to try to reduce inflation. Between February 2022 and July 2023, the range rose from 0% to 0.25% to 5.25% to 5.5%. As of December, the Fed hadn’t increased the rate any further.
When the target range for the federal funds rate increases, interest rates typically rise, making it more expensive for consumers and businesses to borrow money.
Individual investors, as a result, may have fewer additional funds to allocate toward goods, services, and investments. Plagued by hefty inflation that reached 9.1% in the middle of 2022 — its highest point in two decades — the amount of Americans who felt their savings plan was on track declined from 40% in 2021 to 31%. The percentage of consumers who had no retirement savings rose, according to a report from the Board of Governors of the Federal Reserve System.
Gainesville Coins’ Millman gets it. “I think anyone who lived through the last financial crisis in 2008 probably still has strong memories of that, that one day they thought they had all this money for their retirement and then the next it’s gone. You don’t have to worry about that with precious metals, so I think the peace of mind of this is something that’s always going to hold its value is, I guess, an important thing to emphasize or for investors to keep in mind.”
If the federal funds rate’s target range is reduced in 2024, lowering borrowing costs — which the FOMC’s recently released economic projection suggests could occur — and inflation continues to move toward the Fed’s 2% goal, investor interest in assets like gold could potentially grow, according to Millman.
“If the Fed ends up having to cut interest rates sooner or deeper than they expect, that would be like rocket fuel for precious metals for multiple reasons,” Millman observes. “One being that gold tends to do well when interest rates are low because it doesn’t have to compete as hard with assets that offer a yield or dividend.”
Economic Anxiety
Concern that the country would slip into a decline was present throughout 2023; a survey conducted by Nationwide Mutual Insurance Company found that 68% of Americans expected a recession to have already occurred.
If a considerable economic decline should occur, prompting market volatility, the demand for precious metals might increase, advises Gainesville Coins’ Millman.
“Recessionary conditions and fear of recession, that’s a big driver for gold and silver prices because [the assets are] a safe haven,” he says. “It’s a safe place to park your money in the event risk assets like equities are not performing as well.”