Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

1990s vs. 2010s - Which Expansion Will be Better for Gold?

Commodities / Gold & Silver 2019 Jun 09, 2019 - 06:36 PM GMT

By: Arkadiusz_Sieron

Commodities

Ladies and Gentlemen, we have a tie! The current expansion already lasts as long as the economic boom that started in March 1991 and ended in March 2001. We invite you to read our today’s article, which compares both expansions and find out whether the current boom will be better for gold than the 1990s. 

Ladies and Gentlemen, we have a tie! The current expansion already goes on 120 months, the same as the economic boom lasting from March 1991 to March 2001. However, in the previous edition of the Market Overview, we suggested that the current expansion still has room to run. After all, the ongoing boom is very long, but this is because it is very weak. If the US economy is to replay the robust recovery of the 1990s in terms of GDP growth and not merely in terms of number of months, it could grow for additional couple of years.

Now, let’s compare our growth leaders in a more detailed way and draw valuable conclusions for the economic outlook and the gold market


Chart 1: Current vs. economic expansion in the 1990s compared in terms of real GDP (green bars), industrial production (blue bars) and real incomes (red bars)

As one can see in the chart above, although both expansions lasted the same time – 120 months – the boom of the 1990s was much stronger. Indeed, the real GDP and real income soared more than 40 percent, while industrial production surged more than 50 percent over the decade. In contrast, all three measures increased just about 25 percent in the 2010s. It means that the current expansion is much weaker. In part this is completely understandable, because as time goes by and economy advances it is harder for maintaining a fast growth rate. But still the sluggish growth is disturbing, with the exception of the gold bulls who should welcome it.

Let’s move on now to discuss the US labor market. As one can see in the chart below, the unemployment rate at 3.6 percent is currently below the bottom of the 1990s (3.8 percent), although the current expansion started which higher unemployment rate than the former expansion. 

Chart 2: US unemployment rate (red line, left axis, U3, in %) and the labor force participation rate (blue line, right axis, in %) from March 1991 to April 2019.

However, the labor participation rate is significantly lower than in the 1990s, as it declined from about 67 to 63 percent. It indicates that the labor market slack is greater than the unemployment rate suggests. Indeed, the U-6 unemployment rate, which includes also all marginally attached workers plus total employed part time for economic reasons, is at 7.3 percent, a 0.5 percentage point above the through of 6.8 percent in October 2000. If indeed the labor market slack is greater than commonly believed (which would explain the sluggish wage growth), than economic expansion can last longer without overheating.

Let’s compare now inflation in the 1990s and currently. As the chart below shows, inflation rate has been recently significantly lower – more than 1 percentage point, on average – than in the 1990s. Then, there was a disinflation, so gold struggled. Since the Great Recession, inflation rate stabilized, but at stubbornly low level.

Chart 3: US CPI rate (as % from a year ago) from March 1991 to April 2019.

Gold, which is considered to be inflation hedge, does not like low inflation. Although low inflation also means more dovish Fed and lower nominal interest rates, it allows the Goldilocks economy to last.

Indeed, the chart below shows that the nominal long-term yields are significantly lower than in the 1990s. Similarly, the greenback’s strength is weaker than 20-30 years ago. It suggests that the current expansion has still more room to run.

Chart 4: US Long-Term Nominal Interest Rates (red line, right axis, 10-year Treasury yields, in %) and the Trade Weighted US Dollar Index (green line, left axis, against major currencies) from March 1991 to April 2019.

What does it all mean for the gold market? Well, the macroeconomic environment in the 1990s was much worse for the yellow metal. The GDP was rising quickly, while the labor market was strengthening. Inflation was decreasing, while the US dollar was strong and appreciating in the second half of the 1990s. The US fiscal policy was tightening, while the Fed was lifting the federal funds rate in 1993-95, as one can see in the chart below.

Chart 5: Federal deficit (green line, as % of GDP) and the effective federal funds rate (red line, annual average, %) from 1991 to 2018.

Not surprisingly, gold struggled in the 1990s. The current expansion – despite the fact that gold has been recently in a sideways trend – has been much better for the price of the yellow metal, as the chart below clearly shows.

Chart 6: Gold prices (London P.M. Fix, in $) from March 1991 to April 2019.

But what does it imply for the future? First of all, our analysis confirm the view that – given the level of slack in the labor market and low inflation – the current expansion could continue for a while. This is bad news for gold. But we have also good news. In the 1990s, the economy grew strongly despite Clinton’s fiscal surpluses and Fed’s tightening in 1993-95. Now, the economy expands slowly even when supported by the Trump’s fiscal deficits and the Fed’s ZIRP that lasted until December 2015. It doesn’t bode well for the future for the economy in the long term, but it fills the gold bulls with optimism. After all, gold remains in the sideways trend not without a reason: the Goldilocks economy feels good right now, but it might jump out the window later. 

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