• 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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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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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.

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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

• In response to political instability reaching new heights, investors are flocking to gold
• The move to gold is a “flight to safety” – preserving wealth by moving from risky securities to safe haven physical precious metals
• The U.S. Presidential election is likely to increase volatility, and in turn, raise the price of gold

Gold as Hedge Against Political Uncertainty

In a world reeling with political turmoil, gold is once again proving itself to be an unrivaled safe haven asset. Throughout history, gold has been a reliable store of value. As uncertainty increases, so will the demand for the precious metal. In today’s current unrest, gold prices are trading at new highs above $2,400 an ounce. Gold’s inherent economic traits make it a wise choice for those seeking insurance from the severe consequences of political chaos.

A “flight to safety” is at the core of gold’s demand. “Flight to safety” in investing refers to the behavior of investors moving their capital from riskier assets to safer, more stable investments during times of economic uncertainty or market volatility. This typically involves selling off stocks, high-yield bonds, or other speculative investments in favor of gold. The primary goal is to preserve wealth rather than seek high returns.

Reasons Investors Turn to Gold During Political Instability

Investors gravitate towards gold during times of political turmoil for several reasons. Primarily, gold serves as a preservation of wealth. Political instability often leads to higher inflation, devaluing assets. Currency can lose value as people lose confidence in the government, its economic policies, and future economic conditions. Inflation can result from increased government spending to address crises or maintain power. And as inflation rises, capital flight further weakens the currency, creating a vicious cycle of economic instability.

Unlike paper currencies or other assets, gold is a hedge against inflation. It retains its intrinsic value over time. The high liquidity of gold also adds to its appeal. It allows investors to quickly convert their holdings into cash if necessary. Additionally, gold provides diversification benefits, reducing the overall risk in an investment portfolio. Gold’s lack of credit risk and negative correlation to risk asset secures its role as a crisis hedge.

Market Dynamics

Gold and uncertainty are strongly linked. Studies have shown that during global crises, when things are most uncertain, gold prices go up. But even as these tension rise, the riskiness of gold as an investment stays stable. The flight to safety does not make gold markets more volatile. As a matter of fact, when it comes to safe havens, gold has consistently outperformed U.S. government bonds since the 1990s. ¹

Historical Examples

During the subprime mortgage crisis and Great Recession, gold prices climbed over 119% from October 2008 to August 2011.²  Similarly, gold jumped 22% after the Brexit referendum was passed. Prices also surged upward during the 2019 U.S.-China trade tensions. ^3,4

Risk Metrics

The Geopolitical Risk (GPR) index measures both actual and perceived geopolitical tension. A study by the World Gold Organization found that gold responds to elevated geopolitical risk when all other variables are removed. They discovered that an increase in the GPR index by 100 units positively impacts gold’s return by 2.5%. Gold spiked alongside the GPR following the Russia invasion of Ukraine and the conflict in the Middle East. Even as the GPR dropped back down, gold prices remained high.⁵

The Partisan Conflict Index represents the degree of political disagreement among U.S. politicians at the federal level. It is run by the Federal Reserve Bank of Philadelphia. It is significant as a measure of economic and political uncertainty. The index and gold prices often show an inverse relationship: when partisan conflict increases, gold prices tend to rise. When it decreases, gold prices often fall. The Fed explains that this relationship exists because higher partisan conflict creates political uncertainty. And this prompts investors to seek “safe haven” assets like gold, thus increasing demand and driving up its price.⁶

Gold and Elections

Presidential elections often create market volatility. Historically, U.S. election outcomes influence gold prices. After Democratic wins, gold typically rises, while Republican wins usually lead to a decline. Gold prices tend to increase following Democratic victories due to expectations of increased fiscal spending and loose monetary policy. Investors associate these with potential currency debasement. The 2020 U.S. presidential election contributed to gold prices increasing by about 25% in the year leading up to the November election. Gold hit a then all-time high of over $2,000 in August 2020. ⁷

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Unstable Future Outlook

The current state of political instability looks likely to continue. A recent Reuters poll found that 80% of American voters believe the country is spiraling out of control. Eighty four percent are concerned that extremists will commit acts of violence after the election. Few people condone violence, with just 5% of respondents saying it is an acceptable means to achieve a political goal.⁹

This prevailing political and economic instability continues to drive the demand for gold as a safe haven asset. Physical precious metals, especially in a Gold IRA, can shield the value of retirement funds from the impact of social chaos. To protect your finances from an uncertain future, contact us today at 800-462-0071.

Notes:
1. https://www.economicsobservatory.com/is-gold-a-safe-haven-for-investors
2. https://www.deseret.com/2023/11/8/23952266/presidential-elections-republican-democrat-effect-price-gold/
3. https://www.theguardian.com/business/2016/jun/24/gold-jumps-22-percent-eu-referendum-vote
4. https://www.cnbc.com/2019/05/10/gold-market-us-china-trade-talks-tariff-threats-in-focus.html
5. https://www.gold.org/goldhub/gold-focus/2023/10/you-asked-we-answered-whats-impact-of-geopolitics-on-gold
6. https://www.gold.org/goldhub/gold-focus/2023/10/you-asked-we-answered-whats-impact-of-geopolitics-on-gold
7. https://www.royalmint.com/invest/discover/gold-news/us-elections/
8. https://kinesis.money/blog/gold/us-presidential-election-affect-price-gold/
9. https://www.reuters.com/world/us/four-five-americans-fear-country-is-sliding-into-chaos-reutersipsos-poll-finds-2024-07-16/