• A strong dollar caused by aggressive interest rate hikes has diverted demand away from gold
• Several factors including recession, global interest rate hikes and dedollarization will weaken the dollar
• Investors are seizing the chance to buy gold before its price rises again as the dollar drops

Gold to Rise as the Dollar Fades

To paraphrase an ancient Chinese proverb, the best time to buy gold was twenty years ago, the second-best time is right now. Due to market forces, now is an ideal buying opportunity for gold. Investors can lock in the benefits of diversifying with precious metals before the price of gold shoots up again.

Inflation is frustrating the Federal Reserve. It hasn’t budged from its forty-year high despite a blistering series of interest rate hikes meant to tame it. What the rate hikes have done is drive up the value of the dollar. The dollar will continue to surge as rates continue to rise. The Fed is believed to be raising rates at its next two meetings. They like a strong dollar because it lowers the costs of imports. This creates a backdoor way to better inflation numbers. The Fed is willing to overlook the damage a strong dollar does, like reducing the value of American company foreign earnings and increasing the costs of debt held in dollars.

The aggressive rate increases have all but guaranteed a recession. These factors have led investors to seek out the dollar as a safe haven investment. As a result, they have moved away from gold, allowing the price to slip.

Challenges to the Dollar

Conditions are opening a short window to get a great deal on gold. A Bank of America survey of major fund managers found 68% of them believe the dollar is overvalued. Wells Fargo predicts the dollar will fall in 2023. By then, they believe the US recession will be bad enough to motivate the Fed to slow down its interest rate hikes. Wells Fargo thinks the Fed will keep cutting rates the deeper the recession runs. As interest rates come down, so will the value of the dollar.¹

The dollar’s rapid rise is also due in part to the Federal Reserve raising rates faster than other central banks. Foreign investors were drawn to the dollar’s growing yield. The greenback was viewed as a store of value for them as their local currencies and securities sank. But other central banks are now raising their rates to fight inflation. The dominant position of the dollar will fade against other currencies as rates match up.

The strength of the dollar is facing another challenge. There is a global movement towards ‘dedollarization‘. The US weaponized its currency against Russia after the outbreak of the Ukraine war. Other countries quickly realized the need to move away from the dollar as a reserve currency. China is leveraging the size of its economy to turn other countries away from the dollar and towards to the yuan. This reduction in demand from central banks will further devalue the dollar.

When the dollar ultimately drops, investors will return to gold. Dollar exchange rates have been clouding the true demand for gold that exists right now. It’s only against the US dollar that gold seems to be less wanted. Gold priced in British pounds is up 2.3% in the last 30 days. Gold in the Australian dollar is up 6.6% in the last 30 days and up 1.24% in the last six months.²

Overall, the global demand for gold will go back up as will its price. Gold will be sought to preserve wealth as currency devalues from inflation and recession. That’s why savvy investors are locking in gold now. Stocks, bonds, and real estate are all set to continue falling well into next year. Nouriel Roubini is a professor of economics at New York University’s Stern School of Business. He has demonstrated that the US is heading into a very painful and extended period of stagflation. He advised, “Investors need to find assets that will hedge them against inflation, political and geopolitical risks, and environmental damage: these include gold and other precious metals.”³ Contact us today to learn why the timing is right to get Gold IRA.

Notes:
1. https://www.bloomberg.com/news/articles/2022-10-18/bofa-survey-screams-capitulation-with-rally-set-for-early-2023
2. https://www.kitco.com/news/2022-10-12/Gold-is-a-2023-story-but-these-are-the-currencies-to-buy-it-in-right-now.html
3. https://time.com/6221771/stagflation-crisis-debt-nouriel-roubini/

• The International Monetary Fund warns of a ‘painful’ global economic slowdown
• Inflation, high interest rates, war and lingering pandemic effects are driving the slowdown
• The UN warns of an international debt crisis caused by central bank policies

IMF Forecasts Global Recession

In its most recent report, the International Monetary Fund warned that “the worst is yet to come, and for many people 2023 will feel like a recession.” They downgraded its forecast for the global economy due to several factors. A primary one is the worldwide shift to high interest rates to fight inflation. The IMF highlighted that the risk of financial policy “miscalibration” had “risen sharply.” They said the world economy “remains historically fragile” and financial markets are “showing signs of stress.”¹

The IMF called inflation “the most immediate threat to current and future prosperity.” They predict inflation will peak this year. But it will stay elevated for a long time. Even as central banks fight to bring it down. Most central banks want to lower inflation to 2%. They are doing so by aggressively raising interest rates. These rapid hikes are part of the threat to the global economy.²

Other causes of the global recession include Russia’s war on Ukraine, high inflation and China’s economic slowdown. The war in Ukraine continues to “powerfully destabilize the global economy,” according to the report. It is driving up fuel and food prices around the world.

The IMF said there is a significant chance that global growth could fall below 2%. Compare that to the 6% seen in 2021. Global growth has fallen below 2% only five times since 1970. The IMF projects this to be the third weakest global economy since 2001. Only the 2008 financial crisis and the height of the pandemic were worse.³

“Next year is going to feel painful,” said Pierre-Olivier Gourinchas, the IMF’s chief economist. “There’s going to be a lot of slowdown and economic pain,” he said.⁴

The IMF downgraded the world’s major economies. The US is forecast to grow only 1.6% this year and just 1% in 2023. China has also been downgraded. Coronavirus is still slowing their economy. Their quickly deteriorating property sector is also dragging the country down.

The IMF followed its World Economic Outlook Report with its Global Financial Stability Report. That report said, “The global environment is fragile with storm clouds on the horizon.” And that policymakers around the world are facing an “unusually challenging financial stability environment.” Further shocks “may trigger market illiquidity, disorderly sell-offs, or distress.”⁵

The UN Also Issues a Warning

The IMF is not alone in its outlook. The World Bank issued a similar warning as did the UN. The United Nations Conference on Trade Development warned that central bank policies could do more damage to the global economy than the 2008 financial crisis or the pandemic.

The UN said that the world is “on the edge of a recession.” They predict Asian countries will be hit the hardest. The effects of collapsing Asian countries will ripple throughout the global economy. Higher interest rates and an increasingly stronger dollar could cause a massive debt crisis to boil over in South Asia and Western Asia.⁶

The IMF report concluded with a prediction, “As the global economy is headed for stormy waters, financial turmoil may well erupt, prompting investors to seek the protection of safe-haven investments.” The time to move your assets into a safe-haven is before the storm hits. Our Gold IRA can protect your assets from the worst of what’s yet to come. Contact us today to learn more.

Notes:
1. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
2. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
3. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
4. https://www.cnbc.com/2022/10/11/imf-cuts-global-growth-forecast-for-2023-warns-worst-is-yet-to-come.html
5. https://www.cnbc.com/2022/10/11/imf-cuts-global-growth-forecast-for-2023-warns-worst-is-yet-to-come.html
6. https://www.cnbc.com/2022/10/04/unctad-warns-that-asia-global-economy-headed-for-a-recession.html

• A KPMG survey showed a vast majority of CEOs are preparing for a recession
• Recession fears are being driven by the Fed’s aggressive rate hikes to fight inflation
• A poll indicated that most CFOs believe inflation is here to stay
• Market analysts think the recession, if not severe, will be long

Majority of CEOs Anticipate a Recession

The view from the C-suite looks grim for the economy. KPMG conducted a survey of 400 CEOs. It found that 91% of them predict a recession in the next 12 months. Only 34% think the recession will be mild and short.¹

“Once-in-a-generation issues — a global pandemic, geopolitical tensions, inflationary pressures and financial difficulties — have come in short succession and taken a toll on the optimism of global CEOs,” said Bill Thomas, KPMG’s CEO.²

Fears of a recession are coming as the Federal Reserve is hiking interest rates to fight inflation. Market leaders think the large, rapid hikes will slow the economy right into a recession. The Fed has already raised rates by 75 points three times in a row. And there are more large hikes coming. Fed Chairman Powell vowed not to stop until inflation is back down to 2%.

The KPMG survey said more than half of the CEOs are considering reducing their workforce to deal with a recession. They are also holding off on enacting long term spending plans.

CEOS are waiting for the political dust to settle after the midterm elections before making commitments. “There is real uncertainty about the outcome of the midterms and potential for tougher tax legislation and increased regulations,” said a KPMG executive.³

Smaller company leaders are feeling the fear as well. A survey of mid-market companies showed that more than 90% of CEOs of midsized companies are concerned about a recession. More than a quarter of these CEOs said they have already begun layoffs or plan to do so within the next 12 months.⁴

CFOs Surveyed About Peak Inflation and Recession

A CNBC poll showed a majority of CFOs say inflation hasn’t peaked yet. More than a quarter of them say inflation is the greatest risk to their business.

“This inflation is here to stay,” said JPMorgan Asset & Wealth Management CEO Mary Callahan Erdoes. And Unilever CEO Alan Jope said ” any early optimism that inflation has peaked is misplaced.”

Most of the CFOs surveyed believe a recession is already here or about to hit. Nearly half (48%) of CFOs polled said they expect a recession in the first half of 2023. Nineteen percent of CFOs say they expect a recession in the fourth quarter of this year. And another 19 percent said that the U.S. economy is in a recession now.⁵

Recession Expectations

This downturn may be moderate in comparison to the Great Recession. Yet, analysts predict that it will be longer. High inflation is going to stop the government from trying to relieve it. The Fed is ok will with dealing out the pain until inflation is at an acceptable level.

“The Fed is not going to pause until they see that inflation has convincingly come down. That means that this Fed will be hiking well into economic weakness, likely prolonging the duration of the recession,” said Anna Wong, chief US economist.⁶

And there will be pain. In the dozen recessions since World War II, on average the economy contracted by 2.5%. Unemployment rose about 3.8 percentage points and corporate profits fell 15%. The KPMG survey showed 71 percent of CEOs think a recession will impact company earnings by up to 10 percent. Which means an already battered stock market may suffer an even steeper fall as earnings drop.⁷

The people responsible for trillions of dollars of assets can see the writing on the wall. If they are preparing for recession, then so should you. One the best ways to protect your assets during an economic downturn is with a Gold IRA. Contact us today to learn what it can do for you.

Notes:
1. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
2. https://thehill.com/policy/finance/3673092-86-percent-of-ceos-expect-recession-in-next-12-months-survey%EF%BF%BC/
3. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
4. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
5. https://www.cnbc.com/2022/09/29/inflation-yet-to-peak-cfos-say-recession-already-here-or-soon-to-hit.html
6. https://www.bloomberg.com/news/articles/2022-07-03/long-moderate-and-painful-what-next-us-recession-may-look-like
7. https://www.bloomberg.com/news/articles/2022-07-03/long-moderate-and-painful-what-next-us-recession-may-look-like

• The Social Security Trust Fund is scheduled to run out in 2035
• If Congress doesn’t act, benefits will be delayed or cut
• The most recent cost of living allowance may increase beneficiary’s taxes and premiums

Social Security Trust Fund Running Out

The National Institute on Retirement Security describes retirement income as a ‘three-legged stool’. The three legs are Social Security, a pension plan and retirement savings like a 401(k) or an IRA. But unless Congress acts quickly, one of those legs is going to get a lot shorter.

Since its inception in 1937, Social Security has held a surplus in its Trust Fund. Social Security is funded by payroll tax deductions paid by employees and employers. The taxes aren’t set aside in a fund just for the payees. Current workers are paying for current retirees’ benefits. The Social Security Administration (SSA) had always collected more in payroll taxes than the amount paid out. The trust fund had $2.85 trillion in reserves at the end of 2021.¹

Fifty million retired workers collected social security benefits in 2020. In 15 years, millions of retirees may find their benefits being cut. The 2022 Social Security Trustees report said the Social Security trust fund surplus will be depleted in 2035. The number of people paying in is decreasing as the number of those collecting benefits is increasing. This is due to the birth rate decline after the baby boom period following World War 2. As baby boomers retire, fewer workers are left to contribute toward the benefits of each retiree.²

When the trust is empty, beneficiaries would be subjected to benefit cuts of more than 20%. The fund that finances Medicare Part A will run out of reserves in 2028. Afterwards, Medicare will only be able to pay 90 percent of scheduled benefits.³

Congress can fix long term funding issues by cutting benefits, raising taxes or both. Cutting benefits could mean cutting benefits for everyone or increasing the full retirement age. The SSA faced a reserve deficit in 1983. Congress solved the problem then by increasing full retirement age from 65 to 67. They also began collecting income tax on benefits.

An AARP survey found 90% of Democrats, Republicans, and Independents support Social Security. The Center on Budget Policy Priorities says half of seniors get more than 50% of their retirement income from Social Security.⁴

Despite its popularity, Social Security is known as the third rail of politics. Lawmakers fear any solution will upset some block of voters. Congress is going to put off solving this for as long as possible. In the past, Congress has approved payroll tax hikes to preserve Social Security. Which means future retirees can most likely count on more taxes now and fewer benefits later.

Inflation, COLA and Taxes

We are currently experiencing the highest inflation in 40 years. In response, the SSA issued a Cost of Living Allowance (COLA) to help retirees keep up. The COLA was raised 5.9% in 2022. It was the biggest cost-of-living hike in four decades. It can go even higher next year based on inflation.

More money sounds great, at first. But annual COLAs can push a beneficiary over an income threshold into a higher income bracket. This can result in higher Part B premiums. After the 5.9% bump, some people may pay a 20% increase in premiums.⁵

Also, income thresholds do not increase each year. More people can be left paying higher taxes on their benefits. Increased premiums and taxes reduce the net benefit a person receives.

Social Security is turning into the weakest leg of the retirement stool. People should be focusing on retirement funds that they can control and preserve their wealth. Retirees shouldn’t have to find themselves at mercy of the government. A Gold IRA is made to protect your savings from inflation and fickle government policies. Contact us today to learn more.

Notes:
1. https://www.ssa.gov/history/tftable.html
2. https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around.html
3. https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around.html
4. https://www.cnbc.com/select/will-social-security-run-out-heres-what-you-need-to-know/
5. https://smartasset.com/retirement/social-security-medicare

• The Federal Reserve raised interest rates .75 percent to fight inflation
• The Fed will continue raising rates well into next year with the aim of hitting a 2% inflation rate
• The blistering rate hikes could cause recession, sink stock markets and raise unemployment

Interest Rates Increased by 75 Basis Points for Third Straight Month

Federal Reserve raised interest rates three quarters of a percentage point to fight inflation. This is the third massive interest rate hike in a row. The goal of this rapid escalation is to ease inflation by slowing the economy.

Inflation is at its highest levels since the 1980s. To the shock of the Fed, inflation rose in August. The increase occurred even after two record setting rate hikes. After this rate increase, the rate is now in the 3% – 3.25% range. That is the highest it has been since 2008.¹

The Fed indicated they will keep hiking rates to well above the current level. They signaled rates could be raised to 4.6% in 2023. Which means another potential three-quarters point hike in November. Fed Board members don’t expect to cut rates until at least 2024.²

This is the most aggressive tightening cycle as of 1990. Fed Chairman Powell surrendered any hope that inflation was transitory when rates were raised back in March. And after his remarks in Jackson Hole, he has virtually given up on achieving a ‘soft landing’. Instead, he warned of pain coming to households and businesses.

Members of the Federal Reserve Board hope inflation drops down to 5.4% by the end of this year. But when food and energy prices are removed from their calculations, inflation is expected to drop only .1% this year. They don’t plan on reaching their 2% inflation goal until 2025.³

Effects of Rate Increases

Rate increases make home loans, credit cards and car financing more expensive. Some credit card issuers have hiked up their rates to 20%. Mortgage rates have nearly doubled from one year ago to 6%. Existing home sales plunged in August. That’s the seventh straight monthly drop. Prospective buyers are failing to qualify for mortgages as rates tick up.⁴

The Fed says they feel comfortable raising rates because of the current low unemployment numbers. They point to an hourly pay increase of 5.2% from last year. What they don’t emphasize is that inflation more than wipes out any wage gains.⁵ Unemployment is expected to rise to 4.4% by next year from its current 3.7%. Unemployment jumps that large usually go hand in hand with a recession.

The Fed predicts GDP growth slowing to .2% in 2022. That’s down 1.5% from their last estimate in June. Their prediction follows two consecutive quarters of negative growth. In other words, we’re in a technical recession and expect it to continue into next year.

Market experts fear the Fed will slow the economy more than investors expect. Some traders are pricing in the idea that the Fed will give up when they get close enough to their inflation target. That they won’t force a recession to stop inflation. Chairman Powell wants to drive home that there will be no pivot.

“The Fed almost always over-tightens because it uses lagging indicators,” said Tom Porcelli, chief U.S economist with RBC Capital Markets, “It has to wait for everything to be out in the open.”⁶

The stock market is going to be battered if another 75-basis point hike is issued at the next Fed meeting. The rate increase will create a drastic slowdown in profits and the economy.

The Chief Investment Officer with Citi Global Wealth said, “People haven’t considered the amount of earnings declines and the impact on the markets. There’s a real risk to the economy. It’s why we’re worried about corporate earnings next year.”⁷

The Federal Reserve has proven that they are committed to stopping inflation at any cost. By continuing this path with wavering, the Fed could cause markets to collapse, unemployment to jump and a severe recession to take hold. The effects on retirement funds could be devastating. There is a way to protect your savings. Ask us about a Gold IRA today to learn more.

Notes:
1. https://www.cnbc.com/2022/09/21/fed-rate-hike-september-2022-.html
2. https://www.cnbc.com/2022/09/21/fed-rate-hike-september-2022-.html
3. https://www.cnbc.com/2022/09/21/fed-rate-hike-september-2022-.html
4. https://www.foxbusiness.com/economy/fed-meeting-interest-rate-hike-jerome-powell
5. https://www.cnbc.com/2022/09/21/fed-rate-hike-september-2022-.html
6. https://www.cnn.com/business/live-news/stocks-markets-today-fed-rate-hike/index.html
7. https://www.cnn.com/business/live-news/stocks-markets-today-fed-rate-hike/index.html

• Stocks plummeted more than 1,000 points on news of rising inflation
• The real estate market could collapse as the Fed must drive housing prices down to tame inflation
• Analysts are saying this bond bear market is the worst year in history due to inflation

Stocks in Disarray

Current events are rewriting the investment rule book. Traditionally, a well-balanced and diversified investment portfolio is like a three-legged stool. One leg represents stocks, the second one bonds, and the third leg is real estate. With inflation stuck at a 40 year high, the stool is falling apart.

Stocks had their worst day in more than two years on Tuesday. The market plummeted after the Consumer Price Index data showed that inflation increased in August. All three leading indexes suffered a drop. The Dow fell 1,276 points. The S&P 500 declined 177 points and the Nasdaq slid 632 points. For the year, the Dow is down 14.4%. The S&P 500 has lost 17.49%. And the Nasdaq plunged 25.64% into bear territory. ¹

The stubborn inflation numbers made investors sell everything. The 11 sectors of the S&P and all 30 of the Dow Jones equities experienced declines. Traders fear the Fed will be forced to continue raising interest rates to bring inflation down. High interest rates will devalue stocks by damaging corporate profits. There is also a high chance that raising rates will cause a recession.

There is now talk of the Fed issuing an unprecedented 100 bps rate hike. The Fed’s own website says that they must raise interest rates above the core rate of inflation. That means the market is vastly underestimating how high rates will go. Powell has repeatedly confirmed his 2% inflation target. Recession or not, any chance of the Fed pivoting away from their aggressive plan is wishful thinking.

Savita Subramanian is the Bank of America’s Securities head. She says the S&P 500 is the “worst thing to own” in this current high inflation environment. That is, unless you are willing and able to wait 10 years. “If you’re thinking about what’s going to happen between now and let’s say the next 12 months, I don’t think the bottom is in,” she continued. ²

Real Estate and Bond Markets in Trouble

The other two investment legs, real estate and bonds, are looking wobbly as well.

Analysts worry the Fed could crash the housing market. Interest rate hikes can lead to higher mortgage rates. Which could give potential home buyers second thoughts. Housing costs are largely responsible for August’s high inflation numbers. Thus, the Fed is going to focus on forcing housing prices down.

Home sales are already slipping. Sales declined in July for the sixth month in a row. Housing starts are a measure of new home construction. They also plunged in July.

The safety of bonds is evaporating too. Analysts are saying this bond bear market is the worst year in history due to inflation. The Bloomberg Global Aggregate Bond Index down more than 20% from its peak for the first time ever. And it is only set to get worse. ³

The Fed is accelerating their ‘quantitative tightening’(QT). In other words, they are speeding up the process of unloading their balance of almost $9 trillion of Treasuries. They bought the assets to help shore up the economy during the pandemic. Now, QT is threatening the already fragile bond market. The government bond market is considered the bedrock of the global financial system. QT is removing the liquidity from it.

Bank of America has described the Treasury market strains as “arguably . . . one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007.”⁴

These uncertain times are throwing out the traditional investment rule book. Stocks, bonds and real estate are all stumbling. However, gold remains a sturdy safe haven investment. Robert Kiyosaki is the best-selling author of the ‘Rich Dad, Poor Dad’ series. Kiyosaki says to protect your portfolios with “hard assets” like gold and silver as the “biggest crash in history” unfolds.⁵ To learn more how a Gold IRA can preserve your wealth, contact us today.

Notes:
1. https://www.financialexpress.com/investing-abroad/featured-stories/us-stocks-suffer-their-worst-day-in-more-than-two-years/2667050/
2. https://markets.businessinsider.com/news/stocks/warren-buffett-investing-advice-sp500-worst-thing-to-own-bofa-2022-9
3. https://www.reuters.com/markets/europe/bond-bear-market-worst-year-history-asset-inflation-bites-2022-09-02/
4. https://www.ft.com/content/70e43592-30d0-4348-916b-673910ad7726
5. https://www.kitco.com/news/2022-09-14/The-biggest-crash-in-history-is-here-protect-your-portfolio-with-gold-silver-and-livestock-Robert-Kiyosaki.html