August 4, 2022 (Investorideas.com Newswire) The US economy fell into a technical recession. As a safe-haven asset, will gold soar now?
What Is Recession, Anyway?
Ladies and gentlemen, please welcome the technical recession! According to the initial measure of the Bureau of Economic Analysis, real GDP dropped 0.9% in the second quarter, following a 1.6% decline in the first quarter (annualized quarterly rates). As the chart below shows, on a quarter-on-quarter basis, real GDP decreased by 0.4 and 0.2 percent, respectively. Thus, the US economy recorded two quarters of negative growth, which implies a technical recession.
However, are we really in a recession? The Fed and the White House deny that. For example, President Biden said last week: “We’re not going to be in a recession, in my view.” Similarly, Treasury Secretary Janet Yellen said that the US economy is not in a recession, instead it’s “in a period of transition in which growth is slowing”. Yeah, sure! But what else could the officials say?
There is a grain of truth in their statements. After all, with a very low unemployment rate and several economic indicators still relatively strong, the picture isn’t very gloomy. However, unemployment is a lagging indicator, so I wouldn’t seek comfort in the labor market. As well, I wouldn’t trust the officials this time, as they are the same guys who were claiming that high inflation would be only transitory.
Sure, a true recession is defined by the NBER, which determines when the US economy is in such a state as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” In this light, we are not yet in a total recession, as the scale of the decrease has been too small – so far. However, this can change when the impact of high inflation and the Fed’s interest rate hikes is fully transmitted into the economy. The monetary policy operates with a lag, so the worst is yet to come.
This is also what is suggested by the yield curve. The spread between 10-year and 2-year Treasury bonds (red line) has already fallen deeply into negative territory, while the spread between 10-year and 3-month Treasuries (blue line) will probably do it soon, as the chart below shows.
However, who actually cares – except the politicians – about the labels? The economy may be in a recession or not, but one thing is clear: the state of the economy is not good and it’s getting weaker. Just look at the Atlanta Fed’s projection of GDP in the third quarter. According to the GDPNow model estimate from August 1, the real GDP growth (seasonally adjusted annual rate) in the Q3 of 2022 will be 1.3%, down from the 2.1% projected on July 29. It doesn’t bode well, does it?
The same scenario was in late 2007, when economic data was already looking bad, but the pundits disagreed with statements that the US was headed into a recession. People always try to deny their problems – until they become undeniable some time later.
Implications for Gold
What does it all mean for the gold market? Well, gold – as a safe-haven asset – usually thrives during recessions. In recent weeks, the yellow metal rebounded from about $1,700 to about $1,760, as the chart below shows.
To be clear, it’s too early to declare a new bull market in gold. Gold needs a full-blooded recession or an economic crisis that would trigger a lot of fear and force the Fed to ease its monetary stance. Please be prepared that gold could decline substantially before it starts its new rally. In my view, the last FOMC meeting reduced the odds of a large decline, but the sell-off at the beginning of a crisis phase is still very likely, as it was in 2008 and in 2020.
If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!
Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care
This news is published on the Investorideas.com Newswire – a global digital news source for investors and business leaders
Disclaimer/Disclosure: Investorideas.com is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investing involves risk and possible losses. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. Contact management and IR of each company directly regarding specific questions.
More disclaimer info: https://www.investorideas.com/About/Disclaimer.asp Learn more about publishing your news release and our other news services on the Investorideas.com newswire https://www.investorideas.com/News-Upload/ and tickertagstocknews.com
Investorideas.com newswire, breaking global stock market and business news for traders and investo,