The Elephant in the Economic Room: Another Recession?

By:

 Steve Rand

Steve Rand

General Manager / Sr. Precious Metals Advisor

Steve Rand is the General Manager and a Sr. Precious Metals Advisor at Scottsdale Bullion & Coin. He brings over 20 years of experience in the physical precious metals markets.

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Consultants Corner

December 20, 2016

Updated

Consultants Corner

Several analysts and pundits forecasted dire financial and economic consequences for the country if Donald Trump were elected president. To the surprise of many, “the Donald” won and the markets surged. ¹ This optimism continued as Trump nominated individuals committed to a strong economy, tax cuts, and job growth to his Cabinet. However, concerning tidings abroad and here at home suggest that pre-election predictions could soon become dark economic realities.

Economic Instability in Europe

On December 4, 2016, the Italians rejected a referendum intended to salvage their banking system and national economy. Just as with the Greeks, it is very difficult for those feeding at the government trough and the artificial easy credit of fiat money to accept reality. It may, in fact, be not just difficult but impossible without an involuntary and severe economic adjustment. That, of course, is a fancy term for a major financial crash.

Between Brexit, Trump’s win, and rising populism in European countries, it’s certainly been an unpredictable year for politics. ² Such a climate does little to stabilize economies.

Interest Rate Hikes at Home

In the U.S., market participants are focused on another rise in interest rates. Those who look beyond the currently strong equity market know that many segments have been enjoying an unprecedented decade of artificially cheap capital. There is a great deal of concern over the effects restoring some much-needed reality to the markets could have.

Expert Predictions Point to Recession

The above realities have a number of financial experts predicting Trump could have a major impediment to his plans to “Make America Great Again”: a recession. The latest Wall Street Journal survey of major economists put the likelihood of a recession under the next president at nearly 60 percent, and the odds that it will occur within the next year are rising. ³

Significantly, the man from Goldman Sachs who gained fame for predicting the 2008 financial meltdown is in this crowd. Raoul Pal, who founded Global Macro Investor, states categorically that he sees a U.S. recession before the end of 2017. ⁴ 100% of all two-term elections have had a recession within 12 months since 1910, he noted. ⁵

Steve Wieting, global chief strategist at Citi Private Bank, pointed out that of the 12 U.S. presidents taking office since WWII, eight have faced a recession in their first year in office. ⁶

The Growing Glitter of Gold

Some of the same experts predicting a recession are also advocating diversifying portfolios with gold. Pal made it clear that his attraction to gold is nothing but business when he stated, “I’m not a gold bug, but this is the currency I would choose now.” Known for his strategic thinking and frequent meetings and interviews with well-known investors, Pal summarized what he’s been hearing, “All the really serious thinkers are interested in gold.”

This sentiment is why long-term gold investors have been enjoying recent gold buying opportunities. They note that new buyers may have been shaken by the shifts in gold prices due to market optimism and a strong dollar.

However, serious and knowledgeable buyers of gold have seen such fluctuations before. They are sitting back and smiling, along with many of the most prominent investors in the world, confident that gold will be the safe bet when the groaning global economic strains and fractures finally cause a major crack.

Additional Sources