Recession Fears Grow, Brightening the Outlook for Gold

Numerous indicators are pointing to the growing likelihood of a recession which could crush corporate profits, depress stock prices, and send investors searching for safe haven protection in gold. The trend may already be underway with gold having posted a gain of more than five percent during the first four weeks of the year.

The Index of Leading Economic Indicators suffered a sharp decline in December, its seventh drop in a row, pointing to deteriorating conditions in manufacturing, construction, and housing. It implies a “recession for the U.S. economy in the near term,” according to Ataman Ozyildirim, Senior Director of Economics at The Conference Board, which compiles the Index.

Housing is already in a severe recession, with sales slumping due to a dramatic rise in mortgage rates during the second half of 2022.

A growing number of companies, especially in technology, are laying off thousands of workers. And job openings, as tracked by the job listings website Indeed, are dropping. The loss of jobs means less money in people’s wallets, and, in fact, consumer spending is slowing. In December, retail sales suffered a significant decline of 1.1 percent.

Consumer and business sentiment indicators have also been sinking, which will likely lead to further slowdowns in spending.

Finally, the yield curve has been inverted for months, which means short-term U.S. Treasury bonds are yielding more than long-term government bonds. It’s not the normal state of affairs, and a reliable indicator of an impending recession.