The year 2024 is poised to be a critical period for the global economy and it already appears to be fraught with economic and geopolitical challenges, casting a dark shadow over the global landscape. Signs of a looming economic downturn are becoming increasingly evident and the many challenges we faced over the past year will certainly remain with us for many months to come.
Economic and monetary landscape
Central bankers in most advanced economies have already all but announced their intentions for 2024. After claiming that inflation is under control, arguably very prematurely, they are clearly in a hurry to return to expansionary monetary policies. This is because the cracks in the global economy are becoming blatantly obvious. However, their go-to panacea of ultra-low rates and QE is extremely unlikely to work this time around.
Although this is an old problem with these policies, transmission mechanism issues are bound to be even more severe this time. The effectiveness of any monetary policy depends on its transmission, i.e., how changes in interest rates or increases in the money supply affect real spending, saving and investments. If these changes don’t translate into increased borrowing, spending, and investment by businesses and consumers, or if said spending and investing only results in a misallocation of resources as it usually does, the effect on the real economy is actually counterproductive and it does more harm than good.
And let us not forget that the main beneficiaries of cheap credit and loose money are those who actually have access to it and are closest to its source. Once again, this will only offer an advantage to banks and to crony capitalists instead of the average working citizen and tax payer. The extremely predictably asset price inflation will boost the wealth of asset holders, which will in turn add even heavier burdens on the broader population that can expect to see real estate prices soar and their saving accounts go back to paying next to nothing in interest. While we saw these adverse effects before, they can present much more severe problems now, as they compound income inequality and a sense of injustice in an already bitterly divided public.
It also goes without saying that this return to monetary expansionism and ZIRP/NIRP will ensure that the already disastrous levels of indebtedness across the board will reach an even more dire state. It will encourage yet another wave of excessive and unsustainable borrowing by individuals, businesses, and, of course, governments.
Geopolitics as a major disruptor
As we mentioned in previous analyses, there is little to no reason to adopt an optimistic stance on this front. The two ongoing wars, in Ukraine and in the Middle East, show no signs of possible de-escalation and the horrors we’ve already seen are set to continue. So is the widening of the gap between West and the Sino-Russian sphere of influence, with all its detrimental effects on global trade and cooperation.
However, 2024 will also introduce a new variable to the equation. As an EY report points out: “2024 will be a year of elections – we call it the global elections supercycle. Voters will go to the polls in markets accounting for about 54% of the global population and nearly 60% of global GDP. This will generate regulatory and policy uncertainty in the short and medium term. We may look back on some – especially the US and EU – as the most consequential elections in decades, amid competing visions for international relationships and economic policy that will fundamentally impact the global business environment.” This comes at a time of deep sociopolitical division and extreme frictions. Especially in the US, any election result is bound to turn the nation into a tinderbox. The victory of either party is sure to incense the supporters of the other and the way this sentiment is expressed could lead to serious instability.
In the face of all these economic and geopolitical headwinds we’ll likely be facing in 2024, gold emerges as a steadfast refuge for investors navigating uncertain waters. The unique combination of historical resilience, real value, and its role as a hedge against both economic downturns and geopolitical unrest positions gold as a uniquely compelling asset in a challenging investment landscape. Prudent investors will once again find solace in the enduring safe haven status of gold as they seek to safeguard their portfolios against the gathering storm.
This also means in may be time for the old “rule book” of 60-40 (portfolio composition 60% stock and 40% bonds) to be radically revised and transformed under a new kind of 60-40 principle: 60% stocks and 40% precious metals. This way, not only will investors be able to benefit from the stability and inflation protection that precious metals offer, but if they hold these metals physically, they’ll also have the opportunity to massively reduce their exposure to the risks posed by the banking system.
Claudio Grass, Hünenberg See, Switzerland
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