Last week’s article highlighted the World Gold Council’s outlook for gold this year. All in all, things look potentially promising from their vantagepoint. So, hang in there.
In its own 2022 Outlook, too big to fail Goldman Sachs gives the probability of a recession this year as a modest 10%.
In coming to that conclusion, GS looks at three factors that have caused recessions in the past:
By Dave Allen for Discount Gold & Silver
Last week’s article highlighted the World Gold Council’s outlook for gold this year. All in all, things look potentially promising from their vantagepoint. So, hang in there.
In its own 2022 Outlook, too big to fail Goldman Sachs gives the probability of a recession this year as a modest 10%.
In coming to that conclusion, GS looks at three factors that have caused recessions in the past:
Given these historical factors, GS believes the greatest risk of a recession in 2022 — in the U.S. and other countries — is a worsening of the global pandemic.
Otherwise, they see a 10% probability. For perspective, since 1980, the U.S. has been recession 11% of the time — and 14% of the time since the end of World War II.
GS points out that when the economy is in expansion — as it is now (according to the NBER, the U.S. is in the 20th month of economic expansion since the 2020 recession — the probability of recession is 13%.
That’s somewhat higher than its projection but about the same as historical standards.
Fed Tightening is Timely Factor
This blog focuses on Fed tightening, because it’s the most timely factor (aside from the pandemic), given the likelihood of Jerome Powell & Co. starting to raise rates in two months and taper their bond purchases soon after that.
The outlook reports that there have been 15 Fed tightening cycles since the end of WWII.
Not all of them have led to a recession. In fact, only 9 (or 60%) of the 15 cycles have.
Of the last 4 cycles going back to the 1990-1991 recession, only one has — the tightening cycle during the period of June 2004 to September 2006.
According to GS, the cycles that led to a recession, compared to cycles that didn’t, had a greater number of rate hikes (11 vs. 8) and larger increases in rates (5.7% vs. 2.7% trough to peak changes in rates).
Core CPI was also higher in tightening cycles that led to a recession than cycles that didn’t (4.0% vs. 3.0% at start of tightening).
The equivalent core CPI if the tightening cycle begins in March and June 2022 is 4.0% and 5.6% (6 months prior to tightening).
Core CPI excludes what the government says are the volatile food and energy prices.
Also, the time between the start of tightening leading to a recession and the peak of the equity market has averaged 24 months.
The average time from the start of tightening until the recession was 30 months.
These are among the many factors we’ll be looking at in the coming weeks and months to see how gold and silver play into upcoming decisions being considered and made by policymakers in Washington.
Does Goldman Really Like Gold?
In his latest blog, Kelsey Williams asks, “Why is Goldman still looking for $2k gold?”
Last week, Goldman announced it was raising its 12-month price forecast to $2,150 an ounce, up from its previous target of $2,000. The bank also recommended buying December 2022 futures.
Six months earlier, Goldman was more optimistic, calling for a price target of $2,300 based on an “inflationary bias” at the Fed and “rising geopolitical tensions.”
Williams suggests that Goldman, and Wall Street in general, “persist[s] in making predictions for a gold price that has already occurred?”
Why? Because it’s part of a game in which they don’t like gold.
Williams said, “Your broker or financial planner isn’t going to tell you to buy gold coins with 10-20% of your assets and take delivery of them.
“But he or she might tell you to put some of your dollars into a gold-related mutual fund or ETF.”
So, how does Goldman really feel about gold? In July 2020, GS’s chief investment officer Sharmin Mossavar-Rahmani (and co-author of the 2022 Outlook) told CNBC:
“Our view is that gold is only appropriate if you have a very strong view that the U.S. dollar is going to be debased. We don’t have that view…”
Williams points out the irony of Mossavar-Rahmani’s statement coming soon after a team of GS commodity analysts raised their 12-month forecast for gold to $2,300 from $2,000.
Mossavar-Rahmani apparently forgot (or conveniently ignored?) that the U.S. dollar has already been debased by 99%.
And that gold, at $2,000/oz., already reflects that debasement and the resulting loss of purchasing power?
Gold’s Value Isn’t About Price
Precious metal investors know that gold’s value is not about price per se. In fact, Williams believes “the price of gold tells us nothing about gold’s value.”
Instead, today’s “current gold price is merely a reflection of the accumulated loss in purchasing power of the U.S. dollar.”
As Williams notes, higher future gold prices will result “when there’s an additional loss of purchasing power — over a longer period of time.”
In other words, gold will — must — go higher for that reason. It’s fundamental to gold’s store of value.