While the world is distracted by our increasingly rancorous election cycle, Wall Street analysts have begun breaking ranks and sounding an alarm for investors.
Global Macro Investor founder Raoul Pal, who successfully predicted the 2008 crisis, now sees a U.S. recession within 12 months. “I’m not a gold bug,” said Pal, “but [gold] is the currency I would choose now.” He believes gold is seriously undervalued at current levels and could double in price if recession hits.
Savita Subramanian, Bank of America-Merrill Lynch’s head of U.S. equity and quantitative strategy, has issued her own chilling warning. According to Subramanian, we are now seven years into a full-blown campaign by central bankers to stimulate demand, but time has now run out. Her indicators, which have been highly accurate in the past, now show a recession coming in the second half of 2017.
Disturbingly, the risks of recession have not been discounted into the financial markets’ current sky-high levels. Subramanian is anxious about the fragility of the markets and points to last January when bad news sent the stock market tumbling. TheCarlyle Group’s CEO David Rubenstein echoes her concerns and notes that recessions have happened roughly every seven years since World War II.
Murray Gunn, head of technical analysis for HSBC, has issued a “red alert” for an imminent sell-off in stocks. Gunn reports that the stock market’s moves in late September were eerily similar to those before the 1987 stock market crash.
Nowhere To Hide: Here or Overseas
Overseas markets are not immune to the chill. The IMF just issued a “stability warning” over Deutsche Bank, Germany and Europe’s largest investment bank. Many regulators and economists have argued that Deutsche Bank’s size and risk-taking culture poses more of a risk to financial markets than its peers in the U.S. and Europe.
There are also signs of an impending financial crisis in China after their recent record-setting credit boom. Growth is grinding to a halt. The total value of all outstanding loans in China is now topping $28 trillion, equivalent to the entire commercial banking systems of Japan and the U.S. combined!
Goldman Sachs has described current market conditions as a “third wave” of a financial crisis: one that is characterized by rock-bottom commodities prices, stalling growth in China, slowing emerging-markets economies and low global inflation. In other words, the financial crisis of 2008 never ended. In fact, seven years of irresponsible and failed policies by both politicians and central bankers has gotten us nowhere.
No wonder that Goldman Sachs believes that gold falling below $1,250 an ounce signifies a “strategic buying opportunity.” The bank sees major risks in the global economy and thinks central banks are powerless when the next crisis hits.
Uncertainty is rising by many measures. The next meltdown could be triggered by a geopolitical event similar to the 1973 Middle East crisis. Or it could be caused by the Fed raising rates such as in the 1980-1982 recession. Toying with interest rates can incentivize speculative bubbles. Remember the 2000 Internet bubble or the 2008 housing/mortgage bubble?
Factor in a contentious presidential election and the ongoing uncertainty of Brexit, and you can see why this is not the time to have all of your retirement assets in paper-based stocks and bonds.
STRONG SEASONAL DEMAND TRENDS FOR GOLD
It’s that time of year again when seasonal gold demand from China and India comes surging in.
In ancient cultures like China and India, the affinity for gold is universal and precious metals are revered. India is gearing up for the Diwali festival that falls on October 30 this year. It is a major religious celebration for Hindus and Jains where gold is traditionally gifted and augurs “auspicious times.” China, the world’s largest consumer of gold, is beginning preparations for the Lunar New Year.
This timing is extremely important. In the second quarter of 2016, China and India accounted for 44% of gold jewelry consumption globally. Imagine what it could be like in the 4th quarter! Demand is rising in India on the back of an impressive monsoon season.
Commodities expert Manisha Gupta anticipates India could see its strongest gold buying in four years because of the recent drop in prices. The All India Gems and Jewelry Trade Federation estimates sales of gold jewelry in India will grow 20% in volume this season.
BE READY FOR THE COMING RECESSION STORM
When the economy enters into a recession, stock portfolios can take a beating and your retirement plans can take a turn for the worse.
What can you do to soften the impact of recession on your portfolio? Own gold. The precious metal is largely uncorrelated to stocks and many other investments. According to the World Gold Council, gold’s correlation to stocks actually decreases during a recession: a good thing since most stocks will be falling.
There have been seven recessions since 1965, and in five of them, gold prices rose. Investors should be acquiring safe-haven assets like gold now, before the next recession begins. The time to own insurance is before the next catastrophe hits.
Gold is not beholden to central bankers and politicians and gives you liquidity, portability and privacy.
