Precious Metals: What’s Their Role As Experts “Flipflop” on Recession?

The possibility of a recession has been at the forefront of economic discussions recently as some experts repeatedly flipflop between predicting and dismissing the likelihood of a new downturn. 

Some analysts who had previously ruled out a recession have changed their stance and are now warning of the impending arrival of a recession. 

This article takes a closer look at the current indicators for recession, the possibilities that precious metals owners should be aware of, and why precious metals may provide a potential solution for concerned investors. For more details on this topic, click here.

The Back-and-Forth of Recession Forecasts

In July 2022, Michael Gapen, chief U.S. economist at Bank of America, warned that a recession was soon to hit the U.S. economy[1]. However, one year later, with the unemployment rate remaining low at 3.5%[2], Gapen revised his prediction in favor of a “soft landing”[3]. 

As we fast-forward to today, Gapen’s opinion and economic forecasts have changed once again, with various indicators suggesting an economic slowdown and a return to recession predictions.

Peter Berezin, Ph.D. economist and chief global strategist at BCA Research, also shifted away from his previously bullish views toward the possibility of a recession due to the impact of higher interest rates on the U.S. economy[4]. 

Warning Signs: Crucial Economic Indicators Turning Red

Berezin sheds light on economic indicators that suggest a potential recession, placing emphasis on the weakening labor market. 

• U.S. job market deterioration is at the center of Berezin's recession argument.[5] Unemployment has stayed above 4% for each of the past three months, while job openings have dropped to pre-pandemic levels, leaving those who lose their jobs struggling to find new ones.[6] In fact, the latest Job Openings and Labor Turnover Survey (JOLTS) report shows there are now only 1.1 jobs for every unemployed worker, a 50% decline over the last 2½ years.[7]
• This decline in employment significantly impacts consumer spending and overall economic stability. According to Berezin, the personal savings rate in July 2024 was 2.9%, less than half of what it was in 2019, suggesting that excess pandemic savings have been depleted.[8] Furthermore, consumer loan delinquency rates have risen to levels last seen in 2010.[9]
• Berezin also points to indicators such as homebuilder confidence dropping to its lowest level in 2024[10], a decline in housing units under construction by over 8% since the start of the year[11], all-time high office vacancy rates[12], and sluggishness in the manufacturing sector.[13] 

These factors paint a bleak picture of the U.S. economy's health, and some may wonder if the Federal Reserve will step in and lower interest rates to provide some form of financial relief. 

Although it's expected that the Fed will lower rates, history shows that this doesn't guarantee the prevention of a recession.[14] 

According to Berezin, the potential consequences for investors could be severe, with the S&P 500 dropping nearly one-third from its current levels.[15]

Gold IRA as a Portfolio Diversifier In the Face of Uncertainty

With this kind of economic unpredictability in play, investors must find effective strategies to safely navigate the risks associated with potential economic crises. 

An asset with one of the lowest correlations to mainstream assets such as stocks is gold.[16] Its excellent diversification attributes make it very attractive for mitigating risks related to general economic uncertainty and recession.

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Central banks, for instance, typically value gold for its long-term store of value and inflation-hedging capabilities, as well as its performance during times of crisis and its effectiveness as a portfolio diversifier.[17] 

Individual investors, however, must assess their individual financial profiles and determine whether alternative assets like precious metals are right for them, considering factors such as their investment goals, risk tolerance, and time horizon.

As the uncertainty surrounding the global economy continues to darken, it's essential for investors to remain vigilant and prepared for possible changes in the market now more than ever. 

Precious metals – gold in particular, often in a gold IRA -- offer a potential solution for investors seeking to diversify their portfolios and protect their retirement savings against unpredictable risks associated with recessions. 

Whether the recession predictions come true or not, it's crucial for investors to be proactive in planning for their financial futures and considering the potential benefits of diversification into alternative assets such as precious metals.

Want to know more? Visit the Augusta Precious Metals Market News webpage for a full-length version of this article.

Resources:

[1] Howard Schneider and Indradip Ghosh, Reuters.com, “Fed, economists make course correction on US recession predictions” (August 17, 2023, accessed 9/12/24).[2] Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey” (accessed 9/12/24). [3] Schneider and Ghosh, “Fed, economists make course correction.”  [4] Peter Berezin, LinkedIn (accessed 9/12/24).   [5] Peter Berezin, Financial Times, “Reasons why investors need to prepare for a US recession” (September 5, 2024, accessed 9/12/24).  [6] Bureau of Labor Statistics, “Labor Force Statistics.”  [7] Courtenay Brown, Axios, “Job openings data points to cooling job market” (September 4, 2024, accessed 9/12/24).  [8] Berezin, “Reasons why investors need to prepare for a US recession.”  [9] Ibid.  [10] Ibid.[10] Ibid.[11] Ibid.  [12] Ibid.  [13] Ibid.  [14] Ibid.  [15] Matthew Fox, Yahoo Finance, “Gold is outperforming tech stocks this year, and investors should keep buying, BofA says” (August 23, 2024, accessed 9/12/24).  [16] World Gold Council, “Central Bank Gold Reserves Survey” (June 18, 2024, accessed 9/12/24).