Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Key Recession Indicators and Gold

Commodities / Gold & Silver 2019 Mar 29, 2019 - 06:03 PM GMT

By: Arkadiusz_Sieron

Commodities

Do you want to protect your capital against recession? Great, just like us and millions of other people. The key questions is, thus, how to predict that the danger is coming. We invite you to read our today’s article and find out what are key recession indicators – and their relationship with the price of gold.

Do you want to protect your capital against recession? Great, just like us and millions of other people. The key questions is, thus, how to predict that the danger is coming. We have already showed that NBER’s indicators do not signal upcoming economic problems yet. Neither the unemployment rate nor the yield curve.


But there are much more potentially useful recession gauges. Let’s analyze them now. Many people, for example, track jobless claims – which show the number of initial filings for state jobless claims nationwide – as it is very intuitive and the rise in them usually heralds declining employment and rising unemployment. However, there is a lot of noise in that weekly data series. Another problem is that the initial jobless claims are used to forecast changes in the employment and unemployment, so why should we not monitor the unemployment rate directly?

But if somebody would like to use jobless claims anyway to predict recession, here you are. As one can see in the chart below, the jobless claims are still in downward trend with the latest bottom reached in January 2019, so this data series does not indicate the upcoming recession (we would expect a bottom much earlier, and then the start of an upward trend, as it was the case prior to the last two recessions).

Chart 1: Initial jobless claims from January 1998 to February 2019 (index, when December 2007 = 100).

Let’s look further. Some analyst say that consumer and business sentiment are important recessionary indicators. It’s clear that sentiment deteriorates during downturns, but it’s not so obvious whether it can actually predict a recession. The chart below displays US consumer and business sentiment indices. As one can see, both measures started to decline a few months before the last two recessions began.

Chart 2: University of Michigan Consumer Sentiment Index (red line) Business Tendency Surveys for Manufacturing (blue line) from January 1998 to December 2018.

However, both data series are quite volatile with many false positives (for example, consumer sentiment dropped in August 2011, while business sentiment turned negative at the end of 2015). Putting these doubts aside for a moment, let’s note that consumer sentiment is now quite elevated and does not signal the imminent recession. Sorry, gold bulls.

What else is used as a recession indicator? Auto sales and housing permits, for example. The rationale is simple: when there is a recession, people buy fewer cars, while constructors build fewer houses. We paint both data series in the chart below. As one can see, they declined significantly during the Great Recession.

Chart 3: Total Vehicle Sales (red line) and New Private Housing Units Authorized by Building Permits (blue line) from January 1998 to January 2019 (index, when December 2007 = 100).

Actually, the housing permits entered the downward trend much earlier, heralding the upcoming storm – but nobody wanted to listen… However, now, they remain in an upward trend. The vehicle sales dropped in January 2019, but it’s too early to indicate recession. Data does not lie, Mr. Gold, the US economy remains solid.

But let’s not give up. What about credit and money supply? After all, according to many economists, especially from the Austrian school, but also from the Bank of International Settlements, the business cycle is a monetary phenomenon. Bernanke may not agree, but Hayek and Friedman definitely would (and possibly Greenspan would also agree). Recession is an abrupt end of the boom, when the monetary policy is easy, while the credit is plentiful. Indeed, as the chart below shows, prior to the Great Recession, the credit-to-GDP rose to a very high level, which was clearly unsustainable.

Chart 4: Credit to GDP and M2 Money Supply to GDP from Q1 1998 to Q2 2018

However, the credit-to-GDP ratio has declined after the Great Recession and stabilized at more normal level. We do not see any danger here, at least not for now. And when it comes to the ratio of the M2 money supply to GDP, it reached a trough before the last two recessions, as one can see in the chart above. But recently it has reached a peak rather than the bottom. Again, the monetary analysis does not authorize us to call for an alarm. It might be bad news for the gold market.

But it does not have to be. It might be the case that we are looking for a recession not where we should be. All analysts focus on the US economy, but, well, this time the thunder may strike China first. And gold may also shine without recession. We do not expect recession this year, but we believe that 2019 will be better for the yellow metal than 2018, anyway, because of less hawkish monetary policy and less accommodative fiscal policy, and, thus, weaker US dollar. The bullish case may not play out until the second half of the year, though.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules