It seems like only a short while ago inflation was the only thing really threatening most Americans’ finances. Once thought to be transitory, it’s clear that inflation is now here to stay for a while. But with more and more signs that the US economy could be headed towards recession, the R-word is now starting to frighten more and more people.
In many ways it seems like the US economy is headed for a repeat of 2008, but perhaps even worse. Many still seem to have their heads in the sand, with many analysts talking about the possibility of recession in 2023. But an increasing number of signs are demonstrating that recession could be here before we know it.
For all we know, we may already be in a recession right now and won’t know until after the recession is declared. But just in case you haven’t paid close attention to the economy, here are four signs that show that recession could be here soon.
1. Yield Curve Inversion
One of the classic warning signs of an economy poised to head into recession is an inverted yield curve. Normally when you look at the spread of bond yields, short-term bonds have lower yields than longer-term bonds. So the difference between the yield on a long-term bond and a short-term bond, known as the spread, is normally positive.
But sometimes that yield curve inverts, and the yield on the short-term bond is greater than the yield on the long-term bond. This can happen for a number of reasons, such as expectations of rate hikes or investors fleeing to the safety of long-term bonds in expectation of an economic downturn.
Whatever the reason for the yield curve inversion, it’s a sign that markets are afraid of recession on the horizon. And markets recently have seen inverted yield curves several times within the past few months. Normally when the yield curve inverts, recession follows within a matter of months.
2. Base Metals Dropping
Another potential sign of recession is that the prices of base metals are falling. This is especially true for industrial base metals like copper and nickel.
Copper is used for wiring and water pipes, while nickel is used in stainless steel production. When the prices of these metals start to crater, it’s generally seen as an indicator that construction is starting to slow down. And with construction being a big component of economic activity, slowing construction could be an indicator that recession is on the horizon.
Copper has tanked in recent weeks, falling from over $4.50 a pound in April to about $3.34 a pound today. Nickel has collapsed too, falling from over $20 a pound in March to about $9.60 a pound today. That could indicate slowing construction demand and slowing economic activity ahead of a recession.
3. GDP Estimates Are Falling
While recessions are officially designated by the National Bureau of Economic Research (NBER), recession is often colloquially defined as two consecutive quarters of economic contraction.
According to official GDP figures for the first quarter of this year, the economy contracted. And now rather than growing in the second quarter, the economy is expected to contract again, by around 1.2%.
That’s why many people are saying that the US economy is already in recession. Recessions are only declared after the fact, and this one almost seems to be following the same pattern as 2008.
The 2008 recession actually started in December 2007, and it was already underway when Ben Bernanke and other officials were still trying to claim that weakness in the housing market wouldn’t spill over into the rest of the economy. With the parallels between 2008 and today, it shouldn’t surprise anyone if the US economy were already in recession right now.
4. Gold and Silver Prices Are Lower
You might think that gold and silver prices going higher would be an indicator that recession is imminent, not gold and silver prices going lower. But again it pays to take a look at the parallels between today and 2008.
Gold grew in value by 25% between October 2007 and March 2009, the period in which markets declined over 50%. But gold suffered some pretty big losses in 2008.
Gold hit the $1,000 mark in March 2008, no doubt buoyed by safe haven buying. But it fell along with the value of many other assets throughout 2008, falling to below $700 near the end of October.
But the gold price rebounded after that, diverging from Wall Street and going on to set new highs in the coming years. Since gold looks like it’s following that same pattern this year too, it stands to reason that we could see a repeat of 2008 with gold prices too.
So don’t be surprised if you see continued weakness in gold and silver prices this year, because they could very well recover and get stronger towards the end of the year and into next year.
One of the reasons for this weakness in precious metals prices is that institutional investors such as hedge funds have been selling gold and closing out their positions. It’s not unlike 2008, when there was such a panic and a rush for cash that institutional investors were selling anything they could, including gold and silver, to come up with cash to make payments and cover their investment positions.
If everything looks like it’s coming together to result in a recession this year, it’s very possible that gold and silver prices will rise as even more people rush into precious metals to safeguard their assets against loss. So while gold and silver prices may be underperforming right now, their outlook for the long term remains bullish.
In fact, now may be the time to start buying gold and silver if you want to get ahead of the curve. Buying the dip right now may be the last chance you have to buy gold and silver at affordable prices before demand starts driving prices up once again.
If you have retirement savings you want to protect, such as a 401(k), 403(b), TSP, IRA, or similar retirement account, you may want to think about a gold IRA. A gold IRA allows you to hold physical gold coins and bars in an IRA account, with all the same tax advantages as any other IRA account. And you can perform a tax-free transfer or rollover from your existing retirement account into a gold IRA, allowing you to protect your existing wealth by buying gold.
With a potential recession right around the corner, is your wealth protected? Or are you dragging your feet, assuming that you can wait until the last minute to safeguard your savings?
Don’t let the savings you’ve spent years or decades building up fall victim to a recession that more and more people can see coming. Call Goldco today to find out how gold can help you protect your wealth when the next recession hits.