The second scenario paints a picture of a hard landing, with the U.S. economy plunging into a recession. This would create a bullish environment for gold, as the central bank would be compelled to aggressively cut rates to bolster the economy. Cavatoni emphasized that the uncertainties and risks associated with a hard landing could significantly benefit gold.

The third and least likely scenario envisions a no-landing situation, where the U.S. economy sustains solid above-trend growth. WGC assigns a mere 10% probability to this outcome.

While the Federal Reserve’s actions will be a major factor influencing the gold market in the coming year, Cavatoni stressed that other elements would also impact prices. Despite the Federal Reserve’s rapid interest rate hikes in the past year, gold managed to trade around US$2,000 and establish a new record high. Cavatoni pointed out that the Fed’s monetary policy sets the tone, but geopolitical uncertainties and central bank demand remain significant drivers for gold.

Central bank gold demand, according to Cavatoni, has undergone a notable transformation, with nations diversifying away from the U.S. dollar. Initial expectations for average central bank demand at the beginning of 2023 have shifted towards near-record levels, mirroring the purchases seen in 2022.