The Federal Reserve just updated its economic forecast—and let’s just say, it’s not exactly giving “soft landing.” Compared to the December Summary of Economic Projections (SEP), the Fed is now bracing for a slower economy, more people out of work, and—everyone’s favorite—higher inflation.
In numbers?
- GDP expectations for 2025 dropped from 2.3% to as low as 1.6%.
- Inflation (PCE) is expected to run hotter, climbing to 2.7%-2.8% (up from 2.5%-2.6%).
- And unemployment? Now forecasted to rise to 4.4%-4.5%.
So… lower growth, higher inflation, and more joblessness. If this were a dinner party, no one would show up.
But there’s one guest who’s absolutely thriving in this environment: Gold.
Why a Weak Economy + Sticky Inflation = Gold’s Golden Hour
Historically, gold has loved inflation more than landlords love rent hikes.
Let’s rewind:
During the high-inflation chaos of the late 1970s and early 1980s, gold prices skyrocketed. In 1971, gold was $35 an ounce. By 1980? It peaked at $850—a jaw-dropping 2,300% increase in less than a decade.
More recently, gold has nearly tripled in the last 20 years—from ~$450/oz in 2005 to over $2,200/oz in 2024. That’s a return of nearly 390%, or an average of 8.4% per year—outpacing inflation, U.S. Treasurys, and most underperforming mutual funds.
And during times when the Fed starts cutting rates in response to economic slowdown (like what markets expect for 2024–2025), gold tends to outperform.
Why?
Because lower interest rates weaken the dollar and reduce bond yields—making non-yielding assets like gold more attractive by comparison. Add inflation to the mix? That’s rocket fuel.
Proof in the Price Tag
Gold prices surged:
- +25% from July 2019 to July 2020 during early COVID and economic slowdown.
- +15% from October 2022 to May 2023 as inflation peaked and rate hike cycles cooled.
- And now, in 2024, gold hit record highs above $2,200 amid sticky inflation and rate cut expectations.
So, while the Fed might be signaling economic storm clouds, gold investors are reaching for their sunglasses.
The Fed May Be Cutting Rates, But Gold’s Cutting Through the Noise
The latest SEP suggests the Fed might cut rates once or twice this year. But Wall Street is betting on three. Either way, rate cuts are on the horizon—which means easier money, a weaker dollar, and potentially rising inflation.
For investors, that’s a triple threat for stocks.
For gold? That’s a red carpet moment.
As uncertainty looms, central banks are already stockpiling gold (just ask China and India), and states like Utah are investing millions of their rainy-day funds into bullion. Why? Because when confidence in currencies and economic stability wobbles, gold doesn’t flinch.
When the Fed Flinches, Gold Glows
Slower growth, higher unemployment, and rising inflation typically spell trouble for risk assets. But for gold, it’s just Tuesday.
So if you’re looking for something that historically performs well when the economy underperforms, gold might be the most dazzling hedge in your portfolio. While stocks might sweat the Fed’s SEP, gold investors are already reaching for champagne.
