In January 2007, a year before the financial crisis hit, gold began to trend higher.
By January 2008, when the recession officially started, gold prices had surged 50%.
This wasn’t just a lucky coincidence.
Gold had warned investors well ahead of time that an economic crisis was brewing.
Rewind to November 1972:
- Gold prices started rising
- 1 year later: 1973 recession begins
- Result: A 50% decline in the stock market
Gold is Melting Up… Again
Today, we’re seeing a similar pattern.
Gold is on a tear, similar to its behavior before 2 of the worst financial crises in history.
Why Does Gold Rise?
Because investors believe real economic growth is going to decline.
Let’s break it down:
- Gold prices typically ↑ when economic growth ↓
- Periods of stable economic growth often see gold prices steadily moving ↓
In fact, there’s an almost perfect inverse relationship between gold prices and long-term real economic growth in the U.S.
Gold: The Ultimate Economic Sniffer Dog
Gold seems to have the ability to anticipate when growth is about to slow down.
Why?
- Investors flock to gold when they believe the U.S. dollar will lose value
- It’s a hedge against “currency debasement”
During economic downturns:
- The Fed typically cuts interest rates
- They often print money to stabilize the economy
This reduces the purchasing power of the U.S. dollar.
So, investors buy gold to protect themselves.
The Correlation is Clear
Larger moves up in gold are typically associated with bigger declines in U.S. economic growth.
This is exactly what we saw heading into the 2008 and 1974 recessions.
But It’s Not Always Doom and Gloom
Heading into the 1989 and 2001 recessions, gold prices were actually relatively stable.
These ended up being some of the shallowest recessions in recent financial history:
- Unemployment stayed below 10%
- GDP saw only slight contractions
What’s Gold Telling Us Today?
Over the last 12 months, gold has risen by 34%.
Yes, gold is concerned about the economic outlook…
But, it’s not yet as extreme as the 50% moves we saw before the 2008, 1974, and 1980 recessions.
Today’s level of concern is similar to the period heading into the 2020 recession.
🚨 Want to Capitalize on This Gold Rush?
At Bravos Research, we’ve positioned for this bull market in precious metals over the last year.
Last week we closed our long position $GDX (Gold Miners ETF) for a 46% profit.
We sent multiple buy alerts for gold, silver, and gold miners during the consolidation period in 2023.
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Is Gold Signaling a Slowdown?
Gold’s 34% rise in the past year suggests a potential mild economic slowdown in the U.S.
But it is too early to jump to conclusions as gold just broke out of a multi-year basing pattern.
We’re still long on many of our bets in precious metals.
The China Factor
Gold demand has been increasingly driven by China lately.
China’s GDP in U.S. dollar terms is now comparable to the U.S.
However, China is experiencing a major real estate crisis – a sector that makes up 70% of wealthy Chinese individual portfolios.
As confidence in Chinese real estate declines, we’re seeing a larger portion of Chinese wealth flowing into gold.
Inflows into Chinese gold ETFs have skyrocketed throughout 2024.
What About the U.S. Economy?
Even the U.S. economy is contributing to Gold demand.
The economy is already showing some concerning signs:
- Average person’s savings in the U.S. are at the lowest level since 2006-2007
- Americans are struggling to save money
While there are differences from 2008 (e.g., no housing bubble), a weak consumer is never a good sign for economic growth.
Gold’s rise could be reflecting this vulnerability.
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Read more: 3 More Months Until It Begins…
