Gold price
Gold priceISTOCK

Gold has long held its status as a reliable store of value in times of economic headwinds.

As we turn our attention to the coming years, several significant factors are likely to impact the price of gold: the upcoming 2024 US presidential election, ongoing inflation concerns, global economic uncertainties, the Russian-Ukrainian conflict, the economic activities of China, Federal Reserve interest rate decisions, and the potential for a global recession.

This article will dive into these influences, offering a professional and unbiased assessment of their probable effects on the gold market.

The impact of the US presidential election on the gold price

The 2024 US presidential election will likely induce market volatility, as elections have historically done, says Alan Jensen, market analyst of reDollar gold exchange. Changes in administration can introduce new fiscal and monetary policies that significantly influence economic dynamics, thereby affecting the price of gold significantly.

A newly elected president may implement changes in taxation, government spending, and regulation. For instance, significant increases in government spending could lead to higher inflation putting pressure on the gold price. In a highly inflationary environment, gold prices may come under pressure, while a decrease in inflation could spark a new gold price rally. Historically, the pattern has shown that after inflation peaks, gold prices tend to recover and move higher."

Although the Fed (US Federal Reserve System) operates independently, a new administration's broader economic policies can indirectly influence its decisions. An administration favoring stimulus measures might lead to a more accommodative Fed, which could suppress interest rates and boost gold prices.

Political uncertainty itself tends to bolster gold prices as investors seek safe havens. The run-up to the election may therefore see increased demand for gold.

The Impact of the Russian-Ukrainian War on the gold price

The ongoing conflict between Russia and Ukraine adds a layer of geopolitical risk to global markets, often increasing the demand for gold. A prolonged conflict between Russia and the Ukraine could lead to extended sanctions and trade disruptions, particularly in energy markets, which can drive inflation and economic instability, supporting higher gold prices.

Geopolitical tensions generally enhance gold's appeal as a safe-haven asset. Continued instability in Eastern Europe may prompt investors to park their assets in gold, pushing prices upward.

The Impact of China on the Gold Price

China, as a major player in the global economy and a significant consumer of gold, is holding considerable influence over gold prices. China is one of the largest consumers of gold. Any fluctuations in the Chinese economy, whether from growth or slowdown, can significantly impact global gold demand. A robust Chinese economy generally signals higher gold consumption, often leading to a higher gold price.

The People's Bank of China (PBOC) continues to add to its gold reserves as part of its strategy to diversify away from the US dollar. Increased reserves traditionally correlate with higher gold prices on the global market.

As of this summer, China announced its decision to halt further gold purchases, a surprising move given the country's longstanding strategy of accumulating gold reserves. The announcement came from the People's Bank of China, which stated that the country has achieved a sufficient level of gold reserves to support its financial stability and diversify its foreign exchange reserves. The official explanation highlighted the need for a more balanced reserve composition, suggesting that China's economic priorities are shifting towards other assets. This move raises questions about the future direction of China's monetary policy and its implications for the global gold market.

However, skeptics question the transparency and motivations behind this decision. China has historically been secretive about its gold reserves and purchasing strategies, leading some analysts to speculate that the country might still be buying gold through undisclosed channels. The timing of the announcement also raises eyebrows, as it coincides with a period of heightened economic uncertainty and global inflationary pressures.

If China's halt in gold purchases is indeed genuine, the global gold market could experience a significant shift, given China's substantial influence on gold demand. On the other hand, if the announcement is a strategic maneuver, markets might remain volatile, with potential undisclosed purchases continuing to impact prices.

The Fed interest rate decision has a huge impact on the gold price

Federal Reserve interest rate decisions are pivotal in influencing gold prices. Typically, there's an inverse relationship between interest rates and gold prices. Higher interest rates increase the opportunity cost of holding non-yielding assets like gold. Thus, if the Fed decides to raise rates, the gold price might come under significant pressure. Interest rates are an excellent tool to control inflation, and lower interest rates, which stimulate the economy during downturns, would typically support a higher gold price.

Economic downturns often drive investors towards safe-haven assets like gold. The potential for a recession in 2024 or 2025 could have a significant impact on the gold price as during recessions, investors typically move away from riskier assets like stocks and into safer ones like gold. This flight to safety increases demand for gold, that may drive prices higher.

What may happen to the gold price

As we look towards the end of 2024 and 2025, the outlook for gold prices is shaped by a complex mix of political, economic, and geopolitical factors. The 2024 US presidential election is poised to create market volatility and potential shifts in fiscal and monetary policy. Geopolitical tensions, especially the Russian-Ukrainian conflict, continue to elevate gold's status as a safe-haven asset. China’s economic activities, particularly its gold consumption and monetary policy, will significantly influence global gold demand.

Federal Reserve interest rate decisions and inflation concerns are crucial domestic factors, given gold's traditional role as an inflation hedge and its sensitivity to interest rates. The potential for a recession adds another layer of complexity, likely increasing gold's appeal during economic downturns.