• At over $35 trillion and growing, the national debt presents a clear and present danger to the United States
• An economic research report stated that the US is approaching a point where no amount of taxes or spending cuts can prevent a crisis
• Safe haven assets, like physical gold and silver, held in a Gold IRA can shield the value of your portfolio from the effects of massive national debt

National Debt, and Danger, Grow Unchecked

As the Presidential election heats up, there is one issue both parties would like to avoid – the national debt. Having reached astronomical heights, and growing, the debt presents a very real danger to the US economy. With a political system that may be structurally unable to prevent a crisis, Americans should prepare now before consequences hit.

By the Numbers

The US national debt currently sits at $35.26 trillion. That is around $104,000 per citizen. Meanwhile, US Federal tax revenue is at $5 trillion. This model obviously cannot be sustained for much longer. We’re growing the debt more than twice as fast as we’re growing the economy. To grasp the enormity of the debt, there is about $450 trillion combined in the world. Our debt accounts for 7% of all the money in existence. ¹

The interest on the debt is already more than military spending. Over the next decade, interest is expected to double to $1.7 trillion. That is roughly the equivalent of adding another Medicare program. ²

³

Prior to 2000, annual deficits were turning into surpluses. The national debt shrank over three years to around $5.6 trillion in 2000. Alan Greenspan went as far to say the debt could be paid off if current policies continued. We had a debt-to-GDP ratio of 55 percent. ⁴

Today, at $35 trillion, the debt-to-GDP ratio is 122% – and rising. Aggressive government spending is raising the debt $1 trillion every 100 days. For context, the debt-to-GDP ratio during World War 2 was 106% of GDP. ⁵

Future of the Debt

The University of Pennsylvania found both Trump and Harris proposals would increase the national debt. Trump’s would raise the national debt by 9.3%. Harris’ would add 4.4%. The debt would expand more under Trump because he would make his 2017 tax cuts permanent. He would also cut taxes on corporate income and Social Security benefits. Harris would let the cuts expire and raise taxes on businesses and high-income individuals. At the same time, those taxes would be offset by more government spending. ⁶

No matter who wins, the US is headed for $50 trillion in debt by 2034.

Systemic Failure on the Debt

Impediments to preventing a debt crisis may be built into the system. A study by Arnold Ventures states that the US budget process itself has broken. There has always been political brinkmanship, fighting until the very last possible minute. But now, instead of finding workable solutions, Congress simply signs off on raising the debt limit without accountability from either party. The Democrats get more spending, and the Republicans get more tax cuts. Both sticking the American people with the bill.

Vanishing Debt Safeguards

Some economists say the unique role of the US in the world economy protects it from the consequences of runaway debt. They call it ‘exorbitant privilege’. A study found the US can sustain debt around 22% of GDP. That’s because the dollar is the dominant currency for international trade and reserve currency. Other countries will continue buying US debt to avoid sinking their economies. In addition, the US gets significant leeway from seigniorage revenues – printing dollars for next to nothing, and then selling them to other nations for market value. ⁷

The de-dollarization movement could totally undermine this debt protection. China’s yuan or a new gold-back BRICS+ currency could rival the dollar. If US debt reaches extremely high levels, rival currencies may look like the safer choice. The US debt will become a greater liability when we can no longer ‘force’ other nations to finance our debt. Interest rates would skyrocket and send the country into a debt-doom spiral.

Economists Smetters and Gokhale concluded that if US debt held by the public exceeds 200 percent of GDP, no amount of tax hikes or spending cuts can prevent default. We’ll either have to say we will not pay back all our debt, or else inflate it away. Both of which would have massive negative consequences for American workers and consumers. They estimate that the US will reach this point in about 20 years.⁸

Solutions

To fix the problem, entitlements will need to be slashed, taxes will need to be raised, as will the retirement age. Paying off the debt will be a painful legacy passed to future generations.

Some economists are trying to find hopeful solutions. World Bank Group President David Malpass explained tackling the deficit will raise stocks prices, increase employment, and lift wages. To get past a broken Congress, he says begin spending cuts with “small popular one, and then another small one, and then a big popular one, and then a tough one. Build credibility.”⁹

Conclusion

Come January 25th, the debt ceiling will need to be lifted again. Whoever is President on that day is unlikely to take measures that reduce the national debt. Instead, we’ll hurtle closer to “most predictable crisis” – one that can ruin the country’s, and every American’s, financial future. That’s why protecting your portfolio now with safe haven assets like physical gold and silver is a good idea. A Gold IRA can safeguard your savings from the consequences of runaway national debt. Call us today at 800-462-0071 to learn how.

Notes:
1. https://ktrh.iheart.com/featured/houston-texas-news/content/2024-08-27-the-national-debt-now-accounts-for-seven-percent-of-all-global-money/
2. https://www.barrons.com/articles/national-debt-federal-deficit-trump-harris-6c5c6740
3. https://www.forbes.com/sites/dougcriscitello/2024/08/27/will-the-us-government-be-there-when-you-need-it-most/
4. https://ktrh.iheart.com/featured/houston-texas-news/content/2024-08-27-the-national-debt-now-accounts-for-seven-percent-of-all-global-money/
5. https://www.barrons.com/articles/national-debt-federal-deficit-trump-harris-6c5c6740
6. https://www.newsmax.com/newsfront/donald-trump-kamala-harris-trillions/2024/08/28/id/1178179/
7. https://cepr.org/voxeu/columns/exorbitant-privilege-and-sustainability-us-public-debt
8. https://www.vox.com/policy/367278/us-national-debt-gdp-government-inflation-solutions-recession
9. https://www.barrons.com/articles/national-debt-federal-deficit-trump-harris-6c5c6740

• Gold broke another all-time high, hitting $2,571 an ounce
• Demand is likely to increase due to Fed rate cuts, a weaker dollar, and geopolitical uncertainty
• Buying gold now in a tax advantaged Gold IRA can lead to long-term gains

Gold Breaks New All-Time-High

Gold has been on an impressive run since the end of 2022, and it shows no signs of slowing down. On August 20th, gold reached yet another record high. Currently, gold is outperforming stocks, bonds, and even Bitcoin. Now entering its 25th year of a bull market, analysts believe that gold’s upward trend is far from over. The continuing surge is driven by a mix of global demand and economic factors.¹

For the first time ever, the value of a single gold bar has crossed the $1 million mark. Of course, that single gold bar is the 400 troy ounce London Good Delivery bar. The bar is the standard unit of trade in major international gold markets. The price of gold is up more than 20% this year, trading at a record high above $2,500 an ounce, with a peak of $2,571.²

.

³

Gold Demand Sources

The demand for gold is global, but the reasons for this surge vary. In India, there’s a significant increase in demand due to traditional holiday buying and a recent cut in import duties. The chief executive of the London Bullion Market Association said, “It’s really a question of how quickly they can get metal into the country, in terms of the number of flights.”⁴

De-dollarization

Meanwhile, demand also increased on an accelerating de-dollarization movement. The BRICS+ nations are increasing their gold reserves as they reduce their dollar holdings. They are also developing a gold-backed currency to challenge dollar supremacy. Central banks, especially the People’s Bank of China, continue to make record gold purchases. Soaring prices over the past two years have largely been fueled by China.

Geopolitics and Interest Rates

Americans are also contributing to demand. Dangerous geopolitical conflicts and the upcoming presidential election are increasing the desire for financial stability. Gold is considered a safe-haven asset, retaining its value during times of uncertainty. John Reade, chief market strategist at the World Gold Council, commented. He said, “What we have seen is investors and speculators in the West starting to return to the gold market. This has been fast money that has been driving gold.”⁵

Interest rates are also playing a crucial role in the gold market. Western investors largely sat on the sidelines during gold’s 20-month rally. They are now returning with the prospect of interest rate cuts. Institutional investors and bullish hedge funds are boosting gold prices. As are opaque purchases by family offices who are concerned about a devalued dollar.

Investors are betting that further interest rate cuts by the Federal Reserve will push gold prices even higher. Gold tends to rise when interest rates go down. Lower rates reduce the opportunity cost of holding non-yielding assets like gold. This makes it more attractive to investors. In addition, gold is internationally denominated in dollars. So, when the dollar goes down, gold costs more.

National Debt

However, safe haven demand isn’t just being driven by geopolitics and monetary policy. The U.S. national debt is now at $35 trillion and growing. It is eroding confidence in the dollar’s value and the creditworthiness of the United States. Investors are looking for security beyond once bedrock-solid T-bills.

Future Forecasts

Looking ahead, the gold rally appears far from over. Commerzbank expects gold prices to consolidate within the $2,500 range over the next few months. But they don’t expect them to stay static. “We expect the gold price to continue rising in the first half of 2025 due to further Fed interest rate cuts, a U.S. inflation rate that remains above target, and a weaker U.S. dollar,” said the bank’s precious metals analysts. The head of commodities at Citi Research believes that gold could reach $3,000 an ounce by mid-2025.⁶

Conclusion

The bottom line is that gold’s trend remains bullish as we move into September 2024. Even though aggressive bull markets rarely move in straight lines, the quarter-of-a-century trend in gold suggests that any dip could be a chance to add more gold to a diversified portfolio. Since 1999, buying every dip in gold has proven to be a strategy that yields positive returns. Those returns are amplified in a tax-advantaged Gold IRA. To learn more about how you can benefit from gold’s ascent, contact us today at 800-462-0071.

Notes
1. https://seekingalpha.com/article/4715944-gld-gold-shows-no-sign-of-slowing-its-ascent
2. https://www.benzinga.com/analyst-ratings/analyst-color/24/08/40457722/gold-is-getting-its-moment-in-the-sun-and-experts-say-the-record-high-prices-could-
3. https://www.reuters.com/markets/commodities/gold-steady-near-record-high-investors-seek-more-fed-cues-2024-08-20/
4. https://www.ft.com/content/03ed761e-ccf9-4494-b1f8-1cab8313a07f
5. https://www.ft.com/content/03ed761e-ccf9-4494-b1f8-1cab8313a07f
6. https://www.kitco.com/news/article/2024-08-20/commerzbank-sees-gold-prices-consolidating-around-2500-year-end

• Gold prices have been reaching all-time-highs primarily due to purchases from BRICS+ central banks.
• In October, the BRICS+ de-dollarization agenda expands as they plan to announce information regarding the launch of their own gold-backed currency.
• Owning physical precious metals in a Gold IRA can not only protect the value of your savings over the long term, but it could also potentially grow them.

BRICS+ and the Rise of Gold

Gold’s surge to a record high of $2,480 on July 17th underscores its enduring status as a safe haven amid escalating global tensions and economic uncertainty. But the primary driver of demand isn’t coming from the investment sector. Instead, this rise is largely driven by the BRICS+ alliance. Central banks from BRICS+ nations have been on an unprecedented gold buying spree in their pursuit of de-dollarization. This October, they may be announcing the launch of a new currency to rival the dollar – setting off a global shift that could have a significant impact on the US economy and your savings.

Who Are the BRICS+?

The BRICS+ alliance was originally an economic consortium of five major emerging economies—Brazil, Russia, India, China, and South Africa. It has been steadily increasing its numbers and influence on the global stage. Founded in 2006, the group’s primary objective is to counterbalance Western-dominated financial and political institutions. With a combined population of over 3 billion people and some of the world’s largest and fastest-growing economies, BRICS represents a significant bloc in international affairs.

BRICS+ and Gold

As retail investment in gold declined, BRICS+ purchasing has been pushing the price of gold to new levels. The World Gold Council reported that BRICS+ has been the largest buyers of gold since 2022.

Data from the World Gold Council show the largest buyer was the People’s Bank of China. Except for a pause this spring, China has been expanding its gold reserves every single month since October ’22. Russia is also aggressively bulking up its gold reserves. Gold now represents 29% of their total reserves, up from 11% just six years ago.¹

²

Gold and the Weaponized Dollar

Vahan Roth is executive director at Swissgrams AG. His latest analysis posits that gold’s rise is a reaction to the weaponization of the U.S. dollar.

“The world reserve currency…can and will be used as an offensive weapon in geopolitical conflicts,” he wrote. “That same weapon that has been wielded against Russia could be deployed against any other adversary.”³

In response, the BRICS+ alliance is pushing back against the U.S. They want to be able to defend against a weaponized dollar by shifting reserves to gold.

BRICS+ Currency

The BRICS+ path to de-dollarization doesn’t stop with protecting their reserves with gold. They are making significant strides in launching a new currency. The currency would be backed by gold and act as a counter to the U.S. dollar. The nine-member alliance is planning a big announcement about the currency at its October summit.

Some financial experts believe that a gold-backed currency could spell the “beginning of the end” for the US dollar. Developing countries could distance themselves from the dollar, and US influence, by embracing the currency for reserves and cross-border transactions. ⁴

A gold-backed currency would provide a stable alternative. It could reduce the reliance of BRICS+ countries on the U.S. dollar and protect their economies from dollar fluctuations.

The rise of a competing currency is coming at a time when faith is being lost in the greenback. A gold-backed currency would provide a tangible basis for value and stability. In contrast, the U.S. dollar, like most modern currencies, is a fiat currency, meaning it is not backed by any physical commodity. The U.S.’s growing national debt recently reached $34.4 trillion. Concerns are rising about the long-term stability of the dollar. These concerns are among the reasons the BRICS+ are seeking more secure alternatives.

A New Way to Pay

The BRICS+ are already creating a system to rival the SWIFT payment system. The SWIFT payments system enables financial transactions between banks and other financial institutions. Russia was excluded from the SWIFT system after it invaded Ukraine. This effectively isolated Russian financial institutions from global markets. Russia’s exclusion reinforced the need for a financial system outside of Western control.

“The financial agenda of BRICS has a main initiative for building a new economic reality…Creating our own financial messaging system for the BRICS countries, similar to SWIFT,” Alexander Babakov, Deputy Chairman of the Russian State Duma, said.⁵

Implications

The shift away from U.S. dollar dominance erodes America’s default higher standing in the world economy. Destabilizing this position could hurt foreign exchange rates and international lending practices. Reduced demand for dollars could lead to a decline in the currency’s value. The devalued dollar can lead to hyper-inflation, leading to higher prices for imported goods and everyday purchases. In addition, the shift could expose and worsen existing vulnerabilities in the U.S. banking sector, heralding a new crisis.

Conclusion

We are moving to a multipolar financial world with multiple currencies and monetary systems. The era of U.S. dominance looks to be ending. For the BRICS+ nations, these initiatives are not just about economic pragmatism; they are also about asserting greater influence on the global stage. Consequently, the falling value of the dollar would severely impact the worth of dollar-denominated investments like stocks and bonds. In comparison, the price of gold is likely to increase as it used to back a growing currency. That’s why owning physical precious metals in a Gold IRA can not only protect the value of your savings over the long term, but it could also potentially grow them. To learn more, contact American Hartford Gold at 800-462-0071.

Notes:
1. https://www.kitco.com/news/article/2024-07-24/brics-driving-new-gold-rush-china-russia-gold-backed-currency-would-mark
2. https://www.centarzlata.com/wp-content/uploads/2023/08/BRICS-zlato-graf.jpg
3. https://www.kitco.com/news/article/2024-07-24/brics-driving-new-gold-rush-china-russia-gold-backed-currency-would-mark
4. https://watcher.guru/news/brics-gold-backed-currency-is-beginning-of-the-end-for-us-dollar
5. https://www.tekedia.com/brics-announces-plan-to-ditch-swift-create-alternative-financial-system/

 

• Financial gurus are going long on gold, expecting its upward trajectory to continue
• Central bank buying, recession, record debt, and renewed Western investment all fuel the rise in gold prices
• Now may be the opportune time to add physical precious metals to your portfolio in a Gold IRA before prices rise again

Gold Predicted to Rise Even Further

As global financial markets face heightened volatility and uncertainty, many investors are turning to gold as a safe haven asset. Prominent figures like Robert Kiyosaki and experienced traders from “The Big Short” fame have made bold predictions about the future of gold, citing various economic factors that could drive its value significantly higher.

Kiyosaki Warns of a Crash

“Rich Dad Poor Dad” author Robert Kiyosaki has warned of both a massive market crash and a subsequent money-making opportunity. He recently stated, “Technical charts indicate the biggest crash in history coming. Prices of real estate, stocks, bonds, gold, silver, & bitcoin crash.” Kiyosaki suggests that a market crash could be devastating, considering the extensive exposure of investors. For comparison, Americans lost about $16 trillion in net worth during the financial crisis of the late 2000s.¹

Kiyosaki believes that after the crash, there will be an excellent time to buy assets at bargain prices. He forecasts a significant bull market cycle benefiting gold, silver, and bitcoin, driven by a lack of confidence in US currency. The country’s debt could destroy faith in the currency, drastically devaluing it.

Kiyosaki made bold price predictions for after the crash: “Gold possibly $15,000 an ounce, silver possibly $110.00 an ounce, and bitcoin easily to $10 million per coin,” he wrote. Given that gold currently trades at $2,424 per ounce, silver at $29 an ounce, and bitcoin around $66,200 per coin, this forecast implies a 519% upside in gold, a 279% upside in silver, and a staggering 15,000% upside in bitcoin.²

“Big Short” Traders Back Gold

Other traders, such as “The Big Short” investors Danny Moses, Vincent Daniel, and Porter Collins, are also going long on gold. Known for their successful bet against the housing market ahead of the 2008 crisis, these traders have expressed concern that Americans do not hold enough gold in their portfolios. Collins pointed to massive central bank buying and the US budget deficit as reasons to buy gold, leaning heavily on the dollar debasement thesis. This thesis argues that the value of the US dollar declines over time due to excessive money printing and inflation, eroding purchasing power.

“If you just think about that one dollar in your wallet, tomorrow it’s worth less,” Collins added. “I think that in … one, two, three, five, 10 years, you’re going to make a lot more money in gold than you will in U.S. Treasurys, and I think that’s just not changing.”³

Gold’s Performance

Gold has been a better investment than stocks, bonds, or real estate this year, according to Morningstar. Since January 1, gold has provided a 14% return compared to 12% for the S&P 500 index of large U.S. stocks and 2% for the S&P 600 index of small U.S. stocks. Meanwhile, the iShares Core U.S. Aggregate Bond index fund is down 1%, and real estate investment trusts (REITs) have lost nearly 5%.⁴

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⁵

However, the real, inflation-adjusted price of gold is almost twice the average since it began floating freely in 1975. It is close to the peak seen during 2011. Since the dollar has also been rising, gold is even higher in other currencies. In both Japanese yen and British pounds, today’s gold price is about 45% higher than the peaks seen back then, even when adjusted for inflation. ⁶

Interestingly, U.S. investors have mostly missed this latest gold boom. Despite gold proving a better investment than 10-year U.S. Treasury bonds for over 30 years. Treasuries are actually losing their status as the unquestioned “go-to” safe asset. Questions about US creditworthiness and a growing de-dollarization movement are eroding confidence in the government bonds.

U.S. investors have been net sellers of exchange-traded bullion funds so far this year, totaling $4 billion according to the World Gold Council. Analysts attribute this to investors not wanting to miss out on a booming stock market.⁷

Gold Drivers

Central banks continue to be the leading buyers of gold. When Western investors catch up, analysts foresee another significant leap in gold prices. Despite breaking all-time highs, gold is considered underpriced for several reasons. The economic landscape has shifted significantly in favor of gold, with the value of gold compared to the dollar increasing more than the markets expected since 1980 or 2011. The impact of returning Western interest could be substantial. From 2005-2011, flows into GLD (the largest gold-backed ETF) added approximately 38.1 million ounces, driving the metal price from $535 to over $1,800, more than a 300% increase.⁸

A recession, which many indicators suggest is inevitable, would cause demand for gold to surge. Evidence of a weaker economy seems to be ignored by investors looking to ride the stock market as high as the bubble will go. Some economists argue that massive government spending is the only thing propping up the economy, the same spending that jeopardizes the country’s creditworthiness and raises the risk of more inflation.

According to certain analysts, gold is in the middle of a multi-year advance. Geopolitical conflict, stock overvaluation, and volatile U.S. elections all contribute to safe haven demand for gold.

Conclusion

The consensus among numerous sources is clear: gold’s upward trajectory is likely to continue for years to come. Continued central bank buying, fears of dollar devaluation, and a hedge against stock volatility and recession are just some of the factors driving this trend. Another surge in gold prices is expected when Western investors, currently caught in the stock market bubble, match the enthusiasm of their non-Western counterparts. Now may be the opportune time to add physical precious metals to your portfolio in a Gold IRA before prices rise again. Contact American Hartford Gold at 800-462-0071 to learn more.

Notes:
1. https://moneywise.com/investing/investing/robert-kiyosaki-predicts-up-to-15000-upside-in-these-3-assets-foresees-long-term-bull-market-cycle
2. https://moneywise.com/investing/investing/robert-kiyosaki-predicts-up-to-15000-upside-in-these-3-assets-foresees-long-term-bull-market-cycle
3. https://www.cnbc.com/2024/07/27/big-short-traders-are-very-long-gold-say-moses-collins-and-daniel.html
4. https://www.morningstar.com/news/marketwatch/20240524255/yikes-golds-2400-price-tag-is-even-higher-than-you-think
5. https://www.kitco.com/opinion/2024-07-26/us-dollar-decline-and-fall
6. https://www.morningstar.com/news/marketwatch/20240524255/yikes-golds-2400-price-tag-is-even-higher-than-you-think
7. https://www.morningstar.com/news/marketwatch/20240524255/yikes-golds-2400-price-tag-is-even-higher-than-you-think
8. https://www.kitco.com/opinion/2024-07-26/us-dollar-decline-and-fall

• As traders grow optimistic for rate cuts, economists are warning investors to “be careful what they wish for”
• Historically, steep rate cuts occur only after the economy has taken a serious downturn
• Gold is positioned to rise in the case of recession and interest rate cuts

Misplaced Optimism for Rate Cuts

The Federal Reserve is marking a year since pausing rate hikes at 5.25% to 5.5%. As the Fed awaits signs of sustained cooling inflation, investors are growing optimistic for cuts. But some analysts are warning: be careful what you wish for. Historically, rate cuts come at the cost of economic downturn.

According to the CME FedWatch tool, investors are expecting one or two cuts to come in 2024. Deutsche Bank’s Jim Reid noted that this would the eighth time that traders bet on aggressive rate cuts – cuts that never materialized. Traders may again be jumping the gun betting on large interest rate cuts between now and the end of the year. They are pricing in 175 basis points cuts over the next 18 months. ¹

Going from being on hold for more than a year to such drastic cuts means something has gone terribly wrong with the economy. With one exception, the Fed has only cut that deeply when the country was in the throes of recession. Only in the wake of the dot-com bubble deflating in early 2001 and the onset of the financial crisis in September 2007 did the Fed deliver half-point reductions. ²
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³

George Goncalves is the head of US macro strategy at MUFG. He expects the economy to weaken by September, which could lead the Fed to take early action.

“This idea of slow and steady cuts makes no sense given how data is shaping up,” Goncalves said. “The longer you wait, the more you may need to do later.”⁴

Federal Chair Powell has signaled an intention to cut rates. Yet, the Fed does not want to look like they are panicking though. They point to continued growth and consumer spending to “remove the urgency” to act. Economists at LH Meyer, a policy analysis firm, said the current state of the economy does not justify rapid easing. Instead, officials are more likely to do small cuts at each Fed meeting.

Be Careful What You Wish For

“Black swan” investor Mark Spitznagel is urging caution. His firm, Universa Investments, is known for positioning itself to gain on unpredictable black swan events. The fund pulled a 4,144% return on its investments during the pandemic stock crash. He shares the belief that the Fed is only likely to cut rates when the economy is slammed with recession and the market is falling.

“Be careful what you wish for,” Spitznagel said. “People think it’s a good thing the Federal Reserve is dovish, and they’re going to cut interest rates … but they’re going to cut interest rates when it’s clear the economy is turning into a recession, and they will be cutting interest rates in a panicked fashion when this market is crashing.”⁵

The current higher-for-longer rates still threaten to spark a downturn. Spitznagel said today’s markets are a “mega-tinderbox-time bomb.” The potential for a crash is large because of the massive debt acquired when interest rates were ultra-low. He said the yearslong rally in the stock market amounted to the “greatest bubble in human history.” The impact of the bubble bursting would be extreme because the government’s $34 trillion debt would make it harder for them to intervene. ⁶

Conclusion

As traders, once again, get excited for significant interest cuts, analysts are advising caution. While a rate cut can be beneficial, it often signals deeper issues that could lead to significant market declines and earnings reductions. Historically, rate cuts occur after the country has entered recession.
Gold is positioned to benefit from both cases. Gold prices go up when interest rates are cut because lower rates reduce the opportunity cost of holding non-yielding assets like gold. And if cuts are taking place in response to recession, owning gold is advantageous because it retains its value and acts as a hedge against economic uncertainty. A Gold IRA can protect your portfolio from the impact of interest rates for the long term. Call us today to learn more at 800-462-0071.

Notes:
1. https://www.msn.com/en-us/money/markets/traders-may-be-jumping-the-gun-once-again-by-betting-on-aggressive-fed-rate-cuts/ar-BB1qP6Dv
2. https://fortune.com/2024/07/28/fed-rate-outlook-super-sized-cut-bet-bond-traders-fomc-meeting-jerome-powell/
3. https://www.france24.com/en/live-news/20240609-us-fed-likely-to-remain-on-pause-and-pare-back-rate-cut-expectations
4. https://www.france24.com/en/live-news/20240609-us-fed-likely-to-remain-on-pause-and-pare-back-rate-cut-expectations
5. https://markets.businessinsider.com/news/stocks/fed-rate-cuts-stock-market-crash-recession-outlook-economy-investing-2024-4
6. https://www.benzinga.com/markets/equities/24/07/39870083/black-swan-investor-says-greatest-bubble-in-human-history-is-on-the-verge-of-bursting-calls-stoc

 

• Despite multiple recession indicators flashing red, the actual downturn hasn’t materialized yet
• Economists think unique post-pandemic economic dynamics are disrupting traditional forecasting models
• Experts advise preparing for an inevitable downturn by considering safe haven assets like physical gold, silver, or a Gold IRA for long-term financial security

Disrupted Recession Signals

Our current economic situation presents a paradox. While numerous recession indicators are flashing red, the actual downturn has yet to materialize. This delay may be caused by the unique post-pandemic economic dynamics. Traditional forecasting models have been disrupted. However, as noted economist and Johns Hopkins professor Steve Hanke warns, “The average guy on the street corner knows that if they goose the money supply, you’re going to get inflation. And if they contract it — we’ve had four contractions in the history of the Fed since 1930 — and every one of those has led to a deflating economy and ultimately a recession.”¹

Key Recession Indicators

1. Rising Initial Jobless Claims

One of the most reliable recession predictors, initial jobless claims, has surged 20% since January 2024. Historically, such upticks have preceded every U.S. recession. That includes the financial crises of 1990, 2001, and 2008. Analysts at the Game of Trades trading platform caution, “If initial jobless claims are set to rise substantially from here, that really doesn’t bode well for the stock market.”²

Declining Temporary Employment

The Bureau of Labor Statistics has found that declines in temporary employment typically precede a recession by 6 to 12 months. This pattern is emerging once again. Which makes sense. Companies reduce the number of temporary employees to avoid laying off permanent workers.

Chicago Fed president, Austan Goolsbee challenged the temp employment indicator. He said pandemic-era labor shortages “scarred employers so much that they’re like, ‘We don’t rely on temps anymore.” ³

3. Inverted Yield Curve

The inverted yield curve is a historically accurate recession predictor. This economic condition occurs when short-term interest rates exceed long-term rates. It is a sign that investors don’t hold high hopes for future growth. It has been inverted for two years—the longest stretch since the 1929 crash. However, the curve has not yet reached the steepness typically associated with a labor market collapse. Its persistent inversion is cause for concern among economists and investors alike.

⁴

4. Disconnected Financial Markets

A growing disconnect between rising stock markets and increasing unemployment is once again evident. This pattern was observed before the recessions of 1988 and 2006. Since January 2024, the S&P 500 has climbed approximately 15%. Jobless claims have also risen, suggesting that the market may be due for a significant correction.⁵

5. The Sahm Rule: A Near-Perfect Predictor

The Sahm Rule was developed by former Fed economist Claudia Sahm. It has an impressive track record for predicting recessions. According to this rule, a recession is likely when the three-month average unemployment rate increases by 0.5 percentage points over the previous 12 months. As of June, this increase stood at 0.43 percentage points, perilously close to triggering the rule.

However, Sahm herself acknowledges the unique nature of the current economic cycle: “What the pandemic kicked off in terms of a business cycle is very unusual… What’s worked relatively well in the past to signal a recession — it should be no surprise that now they are missing something.”⁶

6. M2 Money Supply

Steve Hanke identifies the money supply as a sign that a soft landing won’t be achieved. The M2 money supply is a measure of how much cash and other liquid assets is flowing through the economy. It has contracted for most of the past two years. Compare that to the 27% surge in 2021 from the massive pandemic stimulus.

Hanke explained that interest rates will need to come down drastically to keep the economy going. But he doesn’t think the Fed will act in time to avoid a recession.

“It’s one of the worst performances of the Federal Reserve,” Hanke said. ⁷

Timing the Downturn

While precise timing remains elusive, many analysts anticipate the recession to hit in the latter half of 2024 or early 2025. This projection comes after the stock market’s recent record highs. A ‘last gasp’ steep climb in stock prices usually occurs before recession begins. Investors should brace for a potential sharp market correction.

Conclusion

Conventional wisdom held that two consecutive quarters of contracting GDP equals a recession. Despite U.S. economic growth being negative in the first and second quarters of 2022, the overall economy never qualified for the National Bureau of Economic Research’s official recession label.

So as economists try to reconcile trusted rules with new results in the post-pandemic economy, the convergence of these signals suggests that economic downturn is inevitable. If every sign points to rain and it’s still sunny out, that doesn’t mean you shouldn’t have an umbrella. The rain is coming, only now you have a chance to prepare for it. Moving funds into safe haven assets like physical gold and silver can protect their value from recession. A Gold IRA is designed to secure your finances for the long term. To learn more, contact us at 800-462-0071.

Notes:

1. https://www.businessinsider.com/recession-outlook-hard-landing-economy-inflation-fed-rates-steve-hanke-2024-7
2. https://finbold.com/buckle-up-these-4-indicators-suggest-recession-is-closing-in/
3. https://www.axios.com/2024/07/23/recession-indicators-signals-not-working-employment-trends
4. https://www.marketwatch.com/story/the-yield-curve-is-speeding-toward-inversion-heres-what-investors-need-to-know-11647977540
5. https://finbold.com/buckle-up-these-4-indicators-suggest-recession-is-closing-in/
6. https://www.axios.com/2024/07/23/recession-indicators-signals-not-working-employment-trends
7. https://www.businessinsider.com/recession-outlook-hard-landing-economy-inflation-fed-rates-steve-hanke-2024-7