The Risks Ahead for Gold in a High Rate Environment

While the Federal Reserve’s “higher-for-longer” narrative is depressing prices, the precious metal has remained surprisingly resilient as governments around the world continue to accumulate it amid growing economic and political risks.

“Most assets are impacted by the Fed and its path in terms of whether it is looking to hike or aggressively hike in the foreseeable future and gold is no exception,” said Stefans, responding to a question from Jin Hennig, CME Group Global Head of Metals, about how U.S. monetary policy will impact bullion.

His remarks came as part of an OpenMarkets Exchange of Ideas panel. The interview took place following CME Group’s annual precious metals dinner in New York in September.

Despite the growing specter of higher benchmark rates and a strong U.S. economy, gold prices (hovering above $1,800 an ounce in early October) haven’t fallen as far as some might have expected, and could be buoyed by nations’ desires to hoard it based on their economic situation. It may be benefiting from  concerns around lingering recessionary and geopolitical risks such as the Russia-Ukraine war and fragile U.S.-China relations.

“Gold is a global investment asset. There are very different economic scenarios across countries around the world,” said Stefans. “So while it makes sense to cut allocations in the U.S. and North America, the opposite is true in a lot of other countries where it makes sense to add gold to portfolios.”

Asked what a U.S. soft landing or recession will mean for gold, Stefans stressed strong demand could continue to lift prices.

“Six months ago, we were in a very dark period in terms of where we thought the U.S. and other countries were heading. Now we are predicting a much softer landing which takes away some of gold’s safe haven status,” Stefans remarked. 

“But gold has become much more than a safe haven. People are buying it for other reasons, such as to diversify away from local currencies or offset economic uncertainties in their countries or regions. So while a soft landing scenario is not necessarily a bullish catalyst for gold, I don’t think it’s as bearish as most of the market would lead you to believe.”