• The first six months of 2022 were dismal for the global economy
• This has been the worst start to a year for stocks in more than 50 years
• The second half of the year promises to be worse with soaring inflation, high interest rates, and recession

A Terrible First Six Months

The good news is that a miserable first half of the year is over. The bad news is that the second half looks like it’s going to be even worse.

A long list of economic crises is battering the economy. Uncertainty is at unprecedented levels. The Ukraine war persists. Covid 19 is wreaking havoc in China. Global supply chains are still snarled. Inflation is at an unrelenting 40 year high. Central banks are tightening monetary policy. Recession fears are growing. As the economy teeters, markets have tanked. The first half of 2022 was historically dismal for global stock markets. Analysts think the future isn’t any brighter.

This has been the worst start to a year for stocks in more than half a century. The NASDAQ has fallen by 30%. The S&P 500 closed out its largest first half decline since 1970. It is down over 20%. Both indexes are in bear territory. The Dow Jones Industrial Average is down over 15%. Bonds have had a terrible 6 months as well. This is a worrying sign since they are so closely tied to economic health. Whipsawing stock prices reflect how nervous investors have become. ¹

The Next Six Months Don’t Look Better

Deutsche Bank economists say it is “plausible” for the stock market to fall 35 to 40 percent from its January peak. This means that the current decline is only about halfway finished. Morgan Stanley also said there could be more downside ahead. According to them, a recession could send the S&P 500 more than 20% lower to 3,000 this year. In addition, Morgan Stanley points to falling bond yields as another indicator of an incoming recession. ²

It all began with a revelation from a Fed meeting on January 5. Data showed that Inflation was rising quickly. It posed a major risk to the economy. Interest rates would have to rise sooner than planned. And just like that, the era of red-hot stock prices fueled by cheap money ended. Aggressive interest rates to curb inflation dramatically altered the economic landscape.

The Federal Reserve’s determination to tame inflation by raising interest rates is a major factor in the current market turmoil. Jerome H. Powell, the Fed chair, said on Wednesday that the central bank’s efforts to fight inflation were “highly likely to involve some pain.”³

HSBC’s global chief strategist says the days of low inflation and low interest rates are behind us. He forecasts a future with persistent high inflation, increased interest rates and more volatile economic cycles. HSBC believes additional new reasons will fuel inflation. Deglobalization, climate policy and a commodity super cycle will push prices up across major economies. The bank believes we might be at peak inflation, but it won’t start declining until the end of the year. They advised that clients “will need to think harder about diversification and portfolio resilience.”⁴

The Schwab Center for Financial Research stated that stocks are going to feel strong downward pressure. The pressure is going to come from the Fed’s tighter monetary policy, reduced liquidity, and slow economic growth. They advise that investors should prepare for more volatility. Companies will be reporting earnings in the next few weeks. Weak earnings and profit margins could prompt yet another market downturn. They emphasize the importance of diversifying with low-risk assets. Gold has traditionally been such a safe haven asset.⁵

The risk of recession is rising. A lot would have to go right for there to be a second half of the year market rally. Inflation would need to be under control. A recession would have to be avoided. The Ukraine war would have to reach a resolution. And company earnings would have to stay afloat. Achieving any one of them is a tall order. All four would be nothing short of miraculous. Barring any miracles, major money managers are advising to hedge against risk with safe haven assets. The Gold IRA from American Hartford Gold is designed to preserve wealth during economic downturns. Contact them today to learn more.

Notes:
1. https://www.npr.org/2022/06/30/1108787657/6-months-stocks-2022-economy-first-half-nasdaq-dow
2. https://www.nytimes.com/2022/06/30/business/stock-market-worst-start-50-years.html
3. https://www.nytimes.com/2022/06/30/business/stock-market-worst-start-50-years.html
4. https://www.cnbc.com/2022/07/05/h2-market-outlook-strategists-on-how-to-weather-the-market-storm.html
5. https://www.schwab.com/learn/story/quarterly-market-outlook

• Stocks, bonds and cryptocurrencies continue to experience epic drops in prices
• Gold has maintained its value in the face of runaway inflation, rising interest rates and the threat of recession
• Analysts and history point to gold prices continuing to rise as global uncertainty increases

Gold Stands Above the Rest

The global economy has been rocked by war, pandemic, inflation, and broken supply chains. As a result, stocks, bonds, and cryptocurrencies have all seen epic downfalls this year. The gleam of gold is the one shining light in the middle of it all. Gold remains solidly secure within its one-year average.

Major indexes have notched big declines in 2022 due to high inflation and rising interest rates. Growing concerns about corporate profits and economic growth have dented investor appetite for risk. The blue-chips are down 18% this year, while the S&P 500 is down 23% and the tech-heavy Nasdaq Composite has fallen 32%.¹

Gold prices are typically lowest in the June to August timeframe. The high for the year was $2,080 per ounce in March. The price rose because of Russia’s invasion of Ukraine. The low for the year was $1,780 in January. Right now, gold is hovering around the $1,800 mark. That price point is where the 52-week moving average lies. Historically speaking then, gold is surpassing expectations. ²

Gold prices were hemmed in a tight range on Tuesday. Prospects of higher interest rates challenged bullion’s safe-haven appeal while recession risks boosted it. Typically, rate hikes dim gold’s appeal by increasing the opportunity cost of holding the asset which pays no interest. “The yellow metal is being pulled in two directions as a hawkish Fed regime clashes with recession fears,” said TD Securities in a note.³

So it can be seen that gold is also doing exactly what it is supposed to: preserve its value and protect capital. Meanwhile, wealth held in securities continues to erode. According to Federal Reserve Bank data, Americans lost half a trillion dollars in wealth in early 2022. ⁴

Gold is holding its own even as the U.S. dollar gains in strength. A rising dollar usually lessens bullion demand from overseas buyers. Gold is actually doing better against other currencies. It is not far off its all-time highs against the pound, the yen and the euro. Analysts predict that as those currency markets are tightened to fight inflation, the dollar will drop. As the dollar drops, the price of gold is expected to go higher.

Gold Forecasts

Goldman Sachs has upgraded their year-end gold target to $2,500 an ounce. In their report, the bank stated that threats of recession would lead to higher gold prices. It also believes that the risk of inflation is likely a strong factor to influence gold prices this year. Goldman has said that inflation expectations may become “unhinged.” Inflation has become far from transitory as the Fed once predicted.

The Goldman report also said that in any scenario where inflation increases rapidly and sustainably, gold will likely outperform other assets. The report stated this is because gold is a physical asset with no liabilities. Its value cannot be eroded by inflation like other assets such as bonds and equities.⁵

War, soaring inflation, a looming recession, and the specter of stagflation are recalling images of the 1970s. While everything looked grim then, gold had one of its best decades. It went from $35 an ounce in 1971 to $850 an ounce in 1980.

The global economy is wracked with challenges. There is out-of-control inflation, geopolitical instability, and escalating de-globalization. Around the world, leadership is losing the faith of the people as their failures mount. All of these conditions are driving investors to gold. The precious metal continues to prove itself as a store of wealth in all the uncertainty. A Gold IRA from American Hartford Gold can deliver the peace of mind that safe haven assets offer. Contact us today to learn more.

Notes:
1. https://www.wsj.com/livecoverage/stock-markets-today-fed-rates-06-16-2022#:~:text=Major%20indexes%20have%20notched%20big,Nasdaq%20Composite%20has%20fallen%2032%25.
2. https://moneyweek.com/investments/commodities/gold/605038/gold-has-been-incredibly-boring-to-own-but-thats-no-bad-thing
3. https://www.cnbc.com/2022/06/28/gold-markets-russia-dollar-treasury-yield.html
4. https://www.cnn.com/2022/06/09/economy/americans-wealth-stock-market-housing/index.html
5. https://www.kitco.com/news/2022-06-29/Goldman-Sachs-raises-its-gold-price-forecast.html

• Major banks and economists now say chances of a recession have significantly increased
• A recession is marked by a decline in employment, income, sales, and GDP
• Jobs, investments, and manufacturing are all put at risk during a recession

Recession Much More Likely According to Major Banks

Goldman Sachs says the risk of the US falling into recession within a year has doubled after the Fed’s aggressive rate hike. They think that the risk has jumped to 30% from 15%. When considering the likelihood of recession over the next two years, that risk jumps to almost 50%.¹

The Fed just raised rates 75-basis-points. The increase was the biggest rate hike in borrowing costs since 1994. The Federal Reserve is responding to inflation hitting a 41-year high of 8.6% in May.²

The stock market is reacting negatively to the rate hikes. Stocks are falling and bond yields are rising. They are now seen as a drag on economic growth.

Nomura, a leading Japanese investment bank, also predicted a recession. It said the slowdown would be shallow but lengthy. That’s because the Fed and government are highly unlikely to step in with any stimulus.

Morgan Stanley sees the chance of recession at 35% over the next year, up from 20% previously. Morgan Stanley said US stocks could crash another 20% as recession risks increase. Meaning the S&P 500 would drop to 3,000. The index has already dropped 20% from its recent high in early January.³

What is a Recession?

The general definition of a recession is two straight quarters of declines in real gross domestic product. The official declaration that we are in a recession comes from the National Bureau of Economic Research, a private organization of economists. NBER usually declares a recession from 6 to 18 months after the recession’s start. They declare a recession based on certain indicators. The indicators include – lower employment, a drop in personal income, a drop in manufacturing, lower retail sales, and a drop in monthly GDP.

What to Expect During a Recession

Recessions are painful. People lose jobs, can’t pay bills and some lose their homes. There is less money for luxuries. People forego vacations or nights out. There is also less money for essentials like food and medical care.

Jobs: During a recession, jobs disappear. Unemployment levels rise. It becomes harder to find a job since more people are out of work. The biggest losses are in manufacturing and related industries. Sectors that rely on discretionary spending, like leisure, hospitality, and retail, will all lose jobs. Financial industries will shrink as well because businesses and individuals borrow less. Those who keep their jobs can expect to not get a raise or bonus. Hours and wages may be reduced. Even worse, if you can’t pay your bills due to job loss, you may face the prospect of losing your home and other property.

Stock: Stocks generally tank during a recession. The stock market begins to fall from its peak months before the actual recession starts. Investors usually move from riskier securities and into safer investments like precious metals. Retirement plans get upset as the value of stock portfolios drop.

Savings: People who still have jobs tend to spend less and save more. But this can create the “paradox of thrift.” One person’s spending is another person’s income. So, if too many people spend less, the result is a negative spiral. Incomes become progressively lower, and unemployment gets higher.⁴

Manufacturing and Services: These areas decline during a recession. As costs rise and demand drops, industries cut back production and services.

Liquidity: Banks are less likely to lend in recessions. They fear they are not going to get repaid.

Deficits: Deficits usually increase. Governments often increase spending to offset the recession’s effects. At the same time, tax receipts falls as corporate and personal incomes decline.

The only upside is that recessions don’t last forever. The NBER tracks the average length of U.S. recessions. According to NBER data, from 1945 to 2009, the average recession lasted 11 months. This is an improvement over earlier eras: From 1854 to 1919, the average recession lasted 21.6 months. Knowing that a recession is likely gives you the opportunity to prepare for it. Contact American Hartford Gold to see how a Gold IRA can secure your nest egg during an economic downturn.⁵

Notes:
1. https://markets.businessinsider.com/news/currencies/us-economy-recession-risk-doubles-gdp-fed-inflation-wages-goldman-2022-6
2. https://markets.businessinsider.com/news/currencies/us-economy-recession-risk-doubles-gdp-fed-inflation-wages-goldman-2022-6
3. https://markets.businessinsider.com/news/currencies/us-economy-recession-risk-doubles-gdp-fed-inflation-wages-goldman-2022-6
4. https://www.jhinvestments.com/viewpoints/investing-basics/what-happens-in-a-recession
5. https://www.forbes.com/advisor/investing/what-is-a-recession/

• In reaction to inflation hitting 8.6%, the Federal Reserve raised rates .75 percentage points
• Recession and higher unemployment deemed necessary to bring inflation down
• “Mad Money” Jim Cramer recommends gold to hedge against inflation and recession

Record Breaking Interest Rate Hikes

Record-high inflation is being met by record-high interest rate hikes. After the inflation rate surged to 8.6%, the Federal Reserve raised interest rates by 0.75-percentage points. That is the largest increase since 1994. It had previously indicated that it would raise rates by .50-percentage points as it had done last month. The Fed signaled that it would continue raising rates until inflation is under control. Projections show interest rates hitting at least 3% this year and 3.75% by the end of 2023. This would be the most aggressive rate rise since the 1980s.¹

Regarding the .75 increase, Fed Chairman Jerome Powell said, “I do not expect moves of this size to be common.” However, he immediately followed that statement by saying the Fed could decide between a 50 and 75 basis point increase at its next meeting.²

Analysts believe current rate hikes will lead to a recession. Recession seems to be the only way to break the grip of inflation. Most Federal Reserve officials now project an almost 40% drop in growth from previous projections.

Mr. Powell suggested the chances of a “soft landing” are slim. “What is becoming more clear is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not,” he said. “It is not going to be easy.”³

The effects of interest rates are rippling through the economy. Mortgage lenders are quoting a 30-year fixed rate above 6%. Levels that high haven’t been seen since 2008. Large real estate brokerages are announcing layoffs as home purchases have stalled.

Higher Unemployment Required

Not so long ago, the Federal Reserve was providing stimulus to help the labor market recover from the pandemic. Now, officials are signaling that high unemployment rates may be necessary to stop inflation.

Unemployment is currently near a half-century low of 3.5%. Low unemployment is thought to fuel inflation. In theory, a tighter labor market forces employers to compete for workers by raising wages. Increasing wages raises the cost of production and in turn, prices. They also devalue the dollar. If everyone gets a 20% raise, then prices will rise accordingly. Mr. Powell estimates that the desired “natural” level of unemployment which won’t cause inflation is well above 3.6%.

A Global Problem

Around the globe, central banks are following the Federal Reserve’s lead in raising rates to control inflation. They suggest we are entering a new inflationary era. High inflation will become the rule, not the exception. As a result, people should expect slow housing markets, high unemployment, and depressed stock prices.⁴

Global inflation is being driven by geopolitical concerns. The Fed is in a tight spot. They can’t do anything about the world outside their immediate grasp. They can raise interest rates. They can cause a recession. And high inflation could still become a fact of life for years to come.

Gold Stands Out

Inflation affects every aspect of life. Truthfully, the Fed has limited options and no guarantees of success. That’s why “Mad Money” host Jim Cramer is recommending gold.

“As an investment, gold won’t offer the same returns as stocks, but it can offer some relief from rising inflation, says Jim Cramer. “I believe in gold,” Cramer said. He argues that it is one of three things that “holds its value in a recession.” The other two are fine art and mansions.

Cramer has always recommended owning a bit of gold “as insurance against the unknown,” as he said in 2019. Within his personal portfolio, 5% is typically put aside for gold-related investments.⁵

Buying physical gold is an accessible way to own precious metals. To learn more about how a Gold IRA can protect your assets, contact American Hartford Gold today.

Notes:
1. https://www.wsj.com/articles/fed-raises-rates-by-0-75-percentage-point-largest-increase-since-1994-11655316170?mod=livecoverage_web
2. https://www.wsj.com/articles/fed-raises-rates-by-0-75-percentage-point-largest-increase-since-1994-11655316170?mod=livecoverage_web
3. https://www.wsj.com/articles/fed-raises-rates-by-0-75-percentage-point-largest-increase-since-1994-11655316170?mod=livecoverage_web
4. https://www.wsj.com/livecoverage/federal-reserve-meeting-interest-rates-june-2022/card/haunting-the-fed-meeting-a-possible-shift-to-a-higher-inflation-regime-1TU1aIpfR3Nia69QlOts
5. https://www.cnbc.com/2022/06/15/jim-cramer-why-gold-is-a-winner-in-times-of-inflation.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

• World Bank Global Economic Prospects Report forecasts stagnant growth and high inflation
• The Report details the very real risks of a global debt crisis and stagflation
• Treasury Secretary Yellen admits upcoming stagflation but deflects responsibility for inflation

World Bank Report Forecasts Global Economic Downturn

The World Bank Global Economic Prospects Report released its most recent findings. And the globe’s prospects do not look good. According to the World Bank, the effects of the Ukraine War and the Covid-19 pandemic will likely lead to years of slow growth and high inflation.

The World Bank lowered their global economy growth forecast. It went from 5.7% in 2021 to 2.9% in 2022. This forecast is lower than their original one of 4.1%. They expect a steeper decline to occur in 2023 and 2024. Poorer countries will be hit the hardest. Millions in the developing world will be pushed into extreme poverty.¹

Central banks around the world are quickly raising interest rates. They aim to bring inflation under control. This is the most widespread tightening in two decades. In the past four months, monetary authorities announced more than 60 rate increases. More are expected ahead.

As a result, low- and middle-income countries now face a serious debt crisis. Their debt is at multi-decade highs. “The associated rise in global borrowing costs and exchange-rate depreciations may trigger financial crises, as it did in the early 1980s,” the World Bank said.² 

Recession and Stagflation Predicted

The Report said the combined impact of the pandemic and the war would leave global economic output in the five years from 2020 to 2024 more than 20% lower than the growth between 2010 and 2019. World Bank President Malpass said, “For many countries, recession will be hard to avoid.”³

The World Bank also warned of possible global stagflation. Stagflation is stagnant economic growth combined with high inflation. They likened current conditions to the stagflation of the 1970s. The ’70s recovery required steep interest rate increases. These increases caused financial crises in developing economies. They also sparked a global recession and a string of debt crises.

Stagflation will be a rude awakening for most Americans. It has been 50 years since the country experienced it. The two ingredients for stagflation may already be here. During Q1 2022, the U.S. economy contracted 1.5%. And, in April, the Consumer Price Index inflation measure was 8.3%.

Treasury Secretary Addresses Inflation

Treasury Secretary Janet Yellen has even said that we’re already seeing “stagflationary effects”. The United States faces “unacceptable levels of inflation” she said. Yellen added that it was likely to remain high but that she hoped price increases would soon moderate.⁴

Ms. Yellen is part of a wide-ranging publicity effort. Inflation is the dominant midterm election issue. Democrats are at risk of losing their narrow control of Congress. At a Senate Finance Committee hearing, Yellen rejected the Republican theory on inflation. They said that the record inflation was caused by Democratic President Joe Biden’s $1.9 trillion American Rescue Plan last year.

Yellen repeated her views that inflation is being fueled by supply-demand mismatches. She cited excessive demand for goods over services during the pandemic. She also blamed severe supply chain disruptions. High energy and food prices caused by Russia’s invasion of Ukraine have also pushed inflation higher, she said.

The causes of inflation may be up for debate. However, the effects are not. “The world economy is again in danger,” World Bank President David Malpass said. “It is facing high inflation and slow growth at the same time. Even if a global recession is averted, the pain of stagflation could persist for several years.”⁵

The entire planet is experiencing an economic upheaval. Experts agree that things will get worse before they get better. Protect your assets from this global economic downturn. A Gold IRA is one of the best investment vehicles to provide you with an economic safe haven. Contact AHG to learn more. 800-462-0071

Notes:
1. https://www.ft.com/content/6f379a95-21e0-4d25-ba09-c91b1432c584
2. https://www.bloomberg.com/news/articles/2022-06-07/stagflation-danger-sees-world-bank-cut-global-growth-outlook
3. https://www.bloomberg.com/news/articles/2022-06-07/stagflation-danger-sees-world-bank-cut-global-growth-outlook
4. https://www.fastcompany.com/90759068/what-is-stagflation-world-bank-warning-economy
5. https://www.bloomberg.com/news/articles/2022-06-07/stagflation-danger-sees-world-bank-cut-global-growth-outlook