A "Looming" Recession Is a Gold Golden Opportunity / Commodities / Gold & Silver 2019
It’s themost widely anticipated recession in history. The recession hasn’t arrived yet– and may not do so anytime soon – but the mainstream media still can’t stoptalking about it.
Considerthis strange article from NBC News. It purports to show that youngadults are posting dark, ironic memes to social media in reaction to a“possible recession looming.” It’s a possible, undated, undefined downturn ofunknown severity that millennials are supposedly now coping with in advance!
CNN,meanwhile, sees “signs of a potential looming recession” – more severe inscope, presumably, than the network’s actual viewer ratings recession.
Thefree-flowing recession talk in the media can create something of aself-fulfilling prophecy.
Ifconsumers and business owners begin to fear an oncoming recession, they maypare back spending and put capital investments on hold – which in turn willcause GDP to weaken.
“Thesnowball of a recession has begun to roll,” writes former U.S. Senator JuddGregg (R). “When the mindset of American business shifts from expansion todefensive restructuring, a recession cannot be far behind. It becomes aself-fulfilling event.”
Trump Economy Slows… ButHasn’t Yet Slid
Some keyindicators are pointing toward an economic slowdown:
Despite low official unemployment numbers across the board, jobs growth has slowed to its weakest pace since 2011.Despite getting a boost from the Trump tax cuts, corporate earnings growth is now decelerating.
Copper and other economically sensitive industrial metals are showing relative weakness.
The Treasury yield curve recently inverted.
And, likely as a result of trade disputes between the U.S. and China, manufacturing activity has slumped to a multi-year low.
GDPitself its slowing. U.S. gross domestic product in the in the second quartercame in at 2% growth (down from 3% earlier in the year) – its second worstshowing since President Donald Trump took office.
Still,it’s not an actual recession. Yet.
If arecession does hit between now and November 2020, President Donald Trump’schances of getting re-elected will be slim.
Thatpolitical reality isn’t lost on Democrats. They are practically begging for arecession! Some in the media are trying to engineer one through theirpropaganda campaigns aimed at manipulating mass psychology.
There iseven a possibility that the Federal Reserve will sabotage the economy to hurtPresident Trump. Former New York Fed President William Dudley is explicitly urging Fed policymakers to withhold economic stimulusas a way of rebuking Trumponomics and tilting the election in favor of hisopponent.
The Fedappears to be back in stimulus mode at the moment, however. The question iswhether the so far tepid rate-cutting campaign will be enough to extend analready overextended economic expansion (officially the longest in history)through 2020.
Perhapsa few more injections of “monetary methadone” (as trends forecaster GeraldCelente dubs it) will send the stock market back to new highs and forestall theinevitable recession for another year or two.
Ifmonetary planners take interest rates down to zero to prevent a recession, theywill then have few conventional tools left in their toolbox.
They canpotentially take rates below zero or invoke other emergency measures, but therewill be strong institutional resistance to doing so until the economy andfinancial markets actually do begin to collapse.
Thelonger the Fed staves off the recession by inflating the economy with debt, theworse the eventual collapse will be. Investors should therefore be preparingfor hard times ahead.
Which Hard Assets Hold UpBest During Tough Times?
Diversifyingout of conventional financial assets is an obvious and necessary step. Hardassets can offer protection both from economic turmoil and inflation.
However,not all hard assets are created equal.
Sometend to correlate strongly with the business cycle and may therefore performpoorly during a recession. Others are more counter-cyclical and can benefitfrom a bad economy accompanied by safe-haven flight out of the stock market.
Thepremier safe-haven hard asset is gold.Prices for the money metal have gained during five of the past seven recessionsthat have occurred since 1970. In 2008, gold was one of the only alternativeinvestment assets to show a gain for the year.
Silveris less reliable during economic downturns. It performed fantastically duringthe stagflationary 1970s. But in general silver tends to fare poorly when a badeconomy causes demand from industrial users to weaken.
Risinginvestment demand can make up some of that decline. Silver is historically and foundationally a form of money. During a financial panic orcurrency crisis, the masses may rediscover its monetary utility. That makessilver more promising to hold during hard times than a straight-up industrialmetal.
Theother precious metals, platinum and palladium, have no real history of beingused as money. Investment buying amounts to less than 3% of their total demandprofiles (with the bulk of demand for platinum group metals coming from thehighly cyclical automotive industry).
Notsurprisingly, platinum and palladium face long odds during recessions. Infact, platinum prices have declined through the duration of six outof the last seven recessions.
Onereason why things might be different this time: platinum justrecently traded off a historically large discount versus gold. It couldsteadily close that gap until it regains a price premium over gold (which itlast held in 2014).
If youare optimistic about the U.S. economy averting recession in the months ahead,then the white metals (platinum, palladium, and silver) will likely beyour presently preferred precious metals holdings.
If youare less optimistic, or simply more risk averse, then you may find greatercomfort in holding the time-tested universal hedge of gold.
Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2019 Stefan Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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