• Despite multiple recession indicators flashing red, the actual downturn hasn’t materialized yet
• Economists think unique post-pandemic economic dynamics are disrupting traditional forecasting models
• Experts advise preparing for an inevitable downturn by considering safe haven assets like physical gold, silver, or a Gold IRA for long-term financial security

Disrupted Recession Signals

Our current economic situation presents a paradox. While numerous recession indicators are flashing red, the actual downturn has yet to materialize. This delay may be caused by the unique post-pandemic economic dynamics. Traditional forecasting models have been disrupted. However, as noted economist and Johns Hopkins professor Steve Hanke warns, “The average guy on the street corner knows that if they goose the money supply, you’re going to get inflation. And if they contract it — we’ve had four contractions in the history of the Fed since 1930 — and every one of those has led to a deflating economy and ultimately a recession.”¹

Key Recession Indicators

1. Rising Initial Jobless Claims

One of the most reliable recession predictors, initial jobless claims, has surged 20% since January 2024. Historically, such upticks have preceded every U.S. recession. That includes the financial crises of 1990, 2001, and 2008. Analysts at the Game of Trades trading platform caution, “If initial jobless claims are set to rise substantially from here, that really doesn’t bode well for the stock market.”²

Declining Temporary Employment

The Bureau of Labor Statistics has found that declines in temporary employment typically precede a recession by 6 to 12 months. This pattern is emerging once again. Which makes sense. Companies reduce the number of temporary employees to avoid laying off permanent workers.

Chicago Fed president, Austan Goolsbee challenged the temp employment indicator. He said pandemic-era labor shortages “scarred employers so much that they’re like, ‘We don’t rely on temps anymore.” ³

3. Inverted Yield Curve

The inverted yield curve is a historically accurate recession predictor. This economic condition occurs when short-term interest rates exceed long-term rates. It is a sign that investors don’t hold high hopes for future growth. It has been inverted for two years—the longest stretch since the 1929 crash. However, the curve has not yet reached the steepness typically associated with a labor market collapse. Its persistent inversion is cause for concern among economists and investors alike.

⁴

4. Disconnected Financial Markets

A growing disconnect between rising stock markets and increasing unemployment is once again evident. This pattern was observed before the recessions of 1988 and 2006. Since January 2024, the S&P 500 has climbed approximately 15%. Jobless claims have also risen, suggesting that the market may be due for a significant correction.⁵

5. The Sahm Rule: A Near-Perfect Predictor

The Sahm Rule was developed by former Fed economist Claudia Sahm. It has an impressive track record for predicting recessions. According to this rule, a recession is likely when the three-month average unemployment rate increases by 0.5 percentage points over the previous 12 months. As of June, this increase stood at 0.43 percentage points, perilously close to triggering the rule.

However, Sahm herself acknowledges the unique nature of the current economic cycle: “What the pandemic kicked off in terms of a business cycle is very unusual… What’s worked relatively well in the past to signal a recession — it should be no surprise that now they are missing something.”⁶

6. M2 Money Supply

Steve Hanke identifies the money supply as a sign that a soft landing won’t be achieved. The M2 money supply is a measure of how much cash and other liquid assets is flowing through the economy. It has contracted for most of the past two years. Compare that to the 27% surge in 2021 from the massive pandemic stimulus.

Hanke explained that interest rates will need to come down drastically to keep the economy going. But he doesn’t think the Fed will act in time to avoid a recession.

“It’s one of the worst performances of the Federal Reserve,” Hanke said. ⁷

Timing the Downturn

While precise timing remains elusive, many analysts anticipate the recession to hit in the latter half of 2024 or early 2025. This projection comes after the stock market’s recent record highs. A ‘last gasp’ steep climb in stock prices usually occurs before recession begins. Investors should brace for a potential sharp market correction.

Conclusion

Conventional wisdom held that two consecutive quarters of contracting GDP equals a recession. Despite U.S. economic growth being negative in the first and second quarters of 2022, the overall economy never qualified for the National Bureau of Economic Research’s official recession label.

So as economists try to reconcile trusted rules with new results in the post-pandemic economy, the convergence of these signals suggests that economic downturn is inevitable. If every sign points to rain and it’s still sunny out, that doesn’t mean you shouldn’t have an umbrella. The rain is coming, only now you have a chance to prepare for it. Moving funds into safe haven assets like physical gold and silver can protect their value from recession. A Gold IRA is designed to secure your finances for the long term. To learn more, contact us at 800-462-0071.

Notes:

1. https://www.businessinsider.com/recession-outlook-hard-landing-economy-inflation-fed-rates-steve-hanke-2024-7
2. https://finbold.com/buckle-up-these-4-indicators-suggest-recession-is-closing-in/
3. https://www.axios.com/2024/07/23/recession-indicators-signals-not-working-employment-trends
4. https://www.marketwatch.com/story/the-yield-curve-is-speeding-toward-inversion-heres-what-investors-need-to-know-11647977540
5. https://finbold.com/buckle-up-these-4-indicators-suggest-recession-is-closing-in/
6. https://www.axios.com/2024/07/23/recession-indicators-signals-not-working-employment-trends
7. https://www.businessinsider.com/recession-outlook-hard-landing-economy-inflation-fed-rates-steve-hanke-2024-7

• In response to political instability reaching new heights, investors are flocking to gold
• The move to gold is a “flight to safety” – preserving wealth by moving from risky securities to safe haven physical precious metals
• The U.S. Presidential election is likely to increase volatility, and in turn, raise the price of gold

Gold as Hedge Against Political Uncertainty

In a world reeling with political turmoil, gold is once again proving itself to be an unrivaled safe haven asset. Throughout history, gold has been a reliable store of value. As uncertainty increases, so will the demand for the precious metal. In today’s current unrest, gold prices are trading at new highs above $2,400 an ounce. Gold’s inherent economic traits make it a wise choice for those seeking insurance from the severe consequences of political chaos.

A “flight to safety” is at the core of gold’s demand. “Flight to safety” in investing refers to the behavior of investors moving their capital from riskier assets to safer, more stable investments during times of economic uncertainty or market volatility. This typically involves selling off stocks, high-yield bonds, or other speculative investments in favor of gold. The primary goal is to preserve wealth rather than seek high returns.

Reasons Investors Turn to Gold During Political Instability

Investors gravitate towards gold during times of political turmoil for several reasons. Primarily, gold serves as a preservation of wealth. Political instability often leads to higher inflation, devaluing assets. Currency can lose value as people lose confidence in the government, its economic policies, and future economic conditions. Inflation can result from increased government spending to address crises or maintain power. And as inflation rises, capital flight further weakens the currency, creating a vicious cycle of economic instability.

Unlike paper currencies or other assets, gold is a hedge against inflation. It retains its intrinsic value over time. The high liquidity of gold also adds to its appeal. It allows investors to quickly convert their holdings into cash if necessary. Additionally, gold provides diversification benefits, reducing the overall risk in an investment portfolio. Gold’s lack of credit risk and negative correlation to risk asset secures its role as a crisis hedge.

Market Dynamics

Gold and uncertainty are strongly linked. Studies have shown that during global crises, when things are most uncertain, gold prices go up. But even as these tension rise, the riskiness of gold as an investment stays stable. The flight to safety does not make gold markets more volatile. As a matter of fact, when it comes to safe havens, gold has consistently outperformed U.S. government bonds since the 1990s. ¹

Historical Examples

During the subprime mortgage crisis and Great Recession, gold prices climbed over 119% from October 2008 to August 2011.²  Similarly, gold jumped 22% after the Brexit referendum was passed. Prices also surged upward during the 2019 U.S.-China trade tensions. ^3,4

Risk Metrics

The Geopolitical Risk (GPR) index measures both actual and perceived geopolitical tension. A study by the World Gold Organization found that gold responds to elevated geopolitical risk when all other variables are removed. They discovered that an increase in the GPR index by 100 units positively impacts gold’s return by 2.5%. Gold spiked alongside the GPR following the Russia invasion of Ukraine and the conflict in the Middle East. Even as the GPR dropped back down, gold prices remained high.⁵

The Partisan Conflict Index represents the degree of political disagreement among U.S. politicians at the federal level. It is run by the Federal Reserve Bank of Philadelphia. It is significant as a measure of economic and political uncertainty. The index and gold prices often show an inverse relationship: when partisan conflict increases, gold prices tend to rise. When it decreases, gold prices often fall. The Fed explains that this relationship exists because higher partisan conflict creates political uncertainty. And this prompts investors to seek “safe haven” assets like gold, thus increasing demand and driving up its price.⁶

Gold and Elections

Presidential elections often create market volatility. Historically, U.S. election outcomes influence gold prices. After Democratic wins, gold typically rises, while Republican wins usually lead to a decline. Gold prices tend to increase following Democratic victories due to expectations of increased fiscal spending and loose monetary policy. Investors associate these with potential currency debasement. The 2020 U.S. presidential election contributed to gold prices increasing by about 25% in the year leading up to the November election. Gold hit a then all-time high of over $2,000 in August 2020. ⁷

⁸

Unstable Future Outlook

The current state of political instability looks likely to continue. A recent Reuters poll found that 80% of American voters believe the country is spiraling out of control. Eighty four percent are concerned that extremists will commit acts of violence after the election. Few people condone violence, with just 5% of respondents saying it is an acceptable means to achieve a political goal.⁹

This prevailing political and economic instability continues to drive the demand for gold as a safe haven asset. Physical precious metals, especially in a Gold IRA, can shield the value of retirement funds from the impact of social chaos. To protect your finances from an uncertain future, contact us today at 800-462-0071.

Notes:
1. https://www.economicsobservatory.com/is-gold-a-safe-haven-for-investors
2. https://www.deseret.com/2023/11/8/23952266/presidential-elections-republican-democrat-effect-price-gold/
3. https://www.theguardian.com/business/2016/jun/24/gold-jumps-22-percent-eu-referendum-vote
4. https://www.cnbc.com/2019/05/10/gold-market-us-china-trade-talks-tariff-threats-in-focus.html
5. https://www.gold.org/goldhub/gold-focus/2023/10/you-asked-we-answered-whats-impact-of-geopolitics-on-gold
6. https://www.gold.org/goldhub/gold-focus/2023/10/you-asked-we-answered-whats-impact-of-geopolitics-on-gold
7. https://www.royalmint.com/invest/discover/gold-news/us-elections/
8. https://kinesis.money/blog/gold/us-presidential-election-affect-price-gold/
9. https://www.reuters.com/world/us/four-five-americans-fear-country-is-sliding-into-chaos-reutersipsos-poll-finds-2024-07-16/

 

• The Congressional Budget Office is forecasting federal deficits to be $2.1 trillion higher over the next decade than initially predicted
• High government debt can lead to soaring inflation and dollar devaluation
• Precious metals, especially in a Gold IRA, can protect the value of your retirement savings from the consequences of America’s runaway debt

Out of Control Debt

In just six months, from January to July 2024, America’s national debt skyrocketed from $33.99 trillion to $34.86 trillion. That’s an astounding increase of $876 billion. With the budget deficit projected to hit $2 trillion, $300 billion more than last year, alarm bells are ringing across the financial and political spectrum.¹

The Congressional Budget Office (CBO) has recently updated its projections. They are forecasting federal deficits to be $2.1 trillion higher over the next decade than initially predicted. The increase is due to new government spending bills and changes in data analysis. ²

The Peter G. Peterson Foundation is a nonpartisan organization focused on America’s fiscal challenges. They warn, “The CBO’s updated projections emphasize the nation’s unsustainable fiscal outlook, as the projections show deficits continuing to rise significantly over the upcoming decade.”³

⁴

These deficit levels are historically associated with times of war or recession-driven stimulus spending. U.S. net debt is nearing 100% of GDP. Large debts like these were once manageable due to near-zero interest rates. But recent aggressive interest rate hikes have turned these debts into a significant burden.

Dangers of Debt

Mike Pompeo is a former Secretary of State and ex-CIA director. He views this debt as a national security threat. He cautions that record-high debt could lead to dollar deterioration. This could potentially allow U.S. rivals to gain influence over the global economy. The BRICS+ economies are gaining geopolitical influence and attempting to establish a rival trading and monetary system.

Pompeo states, “Persistent high debt, interest rates, and inflation can combine to weaken the value of the U.S. dollar in the long run – a disastrous outcome that would only benefit America’s adversaries in Beijing, Moscow, and Tehran as they seek to recenter the global economy away from the United States.”⁵

The consequences of ignoring this mounting debt are dire. Higher debt servicing costs mean less funding for critical public services and reduced capacity to respond to crises. Increasing bond yields would be necessary to attract investors. This translates into higher borrowing costs, and in turn, slowing economic growth.

It also leads to a “crowding effect”. Investors choose to put their money into high interest government bonds instead of private investments. As a result, the economy stalls. In addition, high debt can also lead to dollar depreciation and inflation.

The Congressional Budget Office projects that by the mid-2030s, all federal revenues will go to mandatory spending, like Social Security, and interest on debt. This scenario would force the government to either borrow more or cut discretionary spending to finance basic functions. Defense, law enforcement, infrastructure, and education would all be endangered.

Escaping the Debt

An unlikely solution to the debt crisis is good fortune – inflation is defeated, interest rates go down, and productivity surges (maybe from AI). In essence, America can outgrow its debts.

The International Monetary Fund (IMF) has reiterated its warning that the U.S. debt “needs to be urgently addressed.” They suggest that the U.S. will need to cut spending or raise taxes by 4% of GDP to stabilize the debt by 2029.⁶

However, economists point to a more worrisome solution: sticking it to creditors by devaluing the debt with inflation. Inflation reduces the real value of government debt. Creditors are made to “pay” by receiving less valuable money. Government repayments during high inflation have less purchasing power than the original loan.

This could occur through various mechanisms. All of which are hazardous to the health of the economy: The Federal Reserve prints money to buy government debt. The Fed keeps interest rates low while increasing government spending. Or Congress allows unlimited borrowing, potentially compromising the Fed’s ability to control inflation.

Some analysts argue this process is already underway in America, though it’s too early to be certain.

Global Impact

The global implications of this debt crisis are significant. As the world’s reserve currency, a debased dollar would devalue global reserves. Capital would become more expensive worldwide, leading to global recession. Investors might seek alternatives to the dollar, potentially leading to a chaotic transition into a new world order.

Conclusion

As we face this looming crisis, the words of Mike Pompeo serve as a stark reminder. He said, “We must wake up to the threat America’s mounting national debt poses to the future of our country before it is too late.” The path forward requires difficult decisions, fiscal responsibility, and a clear-eyed view of the challenges ahead. The alternative – a weakened dollar, diminished global influence, and economic instability – is a future we can ill afford.⁷

JP Morgan doesn’t foresee meaningful improvement in the medium term. They advised “adding non-U.S. dollar–denominated assets and ‘real assets’ such as infrastructure, gold and commodities to traditional multi-asset portfolios.” ⁸ Precious metals, especially in a Gold IRA, can protect the value of your retirement savings from the consequences of America’s runaway debt. Contact us today at 800-462-0071 to learn more.

Notes:

1. https://dailyhodl.com/2024/07/07/us-debt-explodes-876000000000-in-six-months-as-ex-cia-director-says-americas-balance-sheet-is-national-security-threat/
2. https://www.pgpf.org/blog/2024/07/the-nations-fiscal-outlook-just-got-worse-heres-why
3. https://www.pgpf.org/blog/2024/07/the-nations-fiscal-outlook-just-got-worse-heres-why
4. https://www.livemint.com/economy/americas-reckless-borrowing-is-a-danger-to-its-economy-and-the-worlds-11720510033537.html
5. https://dailyhodl.com/2024/07/07/us-debt-explodes-876000000000-in-six-months-as-ex-cia-director-says-americas-balance-sheet-is-national-security-threat/
6. https://finbold.com/imf-warns-u-s-to-immediately-address-its-chronic-fiscal-deficits/
7. https://dailyhodl.com/2024/07/07/us-debt-explodes-876000000000-in-six-months-as-ex-cia-director-says-americas-balance-sheet-is-national-security-threat/
8. https://privatebank.jpmorgan.com/eur/en/insights/markets-and-investing/tmt/how-worried-should-you-be-about-government-debt

 

• The AI stock market boom is evoking eerie memories of the dot-com bubble
• There are mixed economic metrics, some of which resemble the dot-com bubble right before it burst and wiped $5 trillion in value
• Diversifying your portfolio with physical precious metals can offer protection against potential stock market crashes

AI Hype Power Stock Market Boom

The stock market is buzzing with excitement over artificial intelligence (AI). Comparisons are being drawn to the dot-com bubble of the late 1990s. As investors pile into AI-related stocks, particularly chip manufacturer Nvidia, many are wondering if history is about to repeat itself.

Nvidia’s graphics processing units (GPUs) are the go-to solution for generative AI. They have seen their shares skyrocket by nearly 4300% over the past five years. This meteoric rise is reminiscent of Cisco’s 4500% surge before peaking in 2000. Nvidia’s success has propelled it to become the most valuable publicly traded company, mirroring the dominance of tech giants during the dot-com era.¹

The current market boom is not limited to Nvidia alone. The stock market has reached record highs this year. The S&P 500 rose over 50% from its October 2022 low. The Nasdaq is up more than 70% since the end of 2022. This surge is largely attributed to the AI boom, echoing the internet-driven enthusiasm of the late 1990s.²

Growing Concerns

One striking similarity to the dot-com bubble is the concentration of market value in a small group of tech stocks. Today, just three companies – Microsoft, Apple, and Nvidia – make up over 20% of the S&P 500 index. Information technology now accounts for 32% of the S&P’s total market value, the largest proportion since 2000.³

⁴

This concentration of value in a few companies is eerily like the “four horsemen” of the late 90s: Cisco, Dell, Microsoft, and Intel. History shows us the potential consequences of such market dynamics. Following the burst of the dot-com bubble, the Nasdaq plunged almost 80% from its March 2000 peak. More than $5 trillion in market value was wiped out by the crash.

The appeal of AI is undeniable. PricewaterhouseCoopers estimates that AI could add $15.7 trillion to the global economy by 2030. However, as with any emerging technology, there’s a gap between potential and reality. Companies are still figuring out how to effectively implement and monetize AI. This could lead to bumps in the road for even the most promising players like Nvidia.⁵

Financial metrics are sending mixed signals. Forward-year earnings and price/earnings-to-growth ratios aren’t raising immediate red flags. But some analysts are concerned about Nvidia’s trailing-12-month price-to-sales ratio. This metric compares a company’s current stock price to its sales revenue over the past year. That ratio is peaking at levels like those seen in Cisco and Amazon just before the dot-com bubble burst.

The broader market also shows signs of potential overvaluation. The Shiller CAPE ratio is designed to assess whether the stock market is overvalued or undervalued. It is near historic highs. This, combined with the concentration of gains in a small number of stocks, has led some experts to warn that the market is vulnerable to a major correction.

Lance Roberts is CIO of RIO Advisors. He points out that companies are fueling investor hopes by increasingly mentioning AI in their earnings reports. AI references have surged 70% since late 2022. Roberts warns, “We are again experiencing another of these speculative ‘booms,’ as anything related to artificial intelligence grips investors’ imaginations.”⁶

Several factors could potentially burst the AI bubble. These include a reduction in demand if AI’s utility doesn’t match the hype, increasing competition within the AI space leading to lower prices, or rising costs from suppliers cutting into profits.

The market’s future also hinges on broader economic factors. If inflation flares up and the Federal Reserve raises interest rates or doesn’t cut them as expected, investor expectations could rapidly shift. Capital Economics, a research firm, predicts that the AI-fueled stock bubble will burst in 2026. This will be due to rising interest rates and higher inflation bringing down equity valuations.

While Capital Economics expects the S&P 500 to potentially reach as high as 6,500 by 2025 off AI enthusiasm, they also forecast a subsequent correction.

“We suspect that the bubble will ultimately burst beyond the end of next year, causing a correction in valuations. After all, this dynamic played out around both the dot-com bubble of the late 1990s and early 2000s and the Great Crash of 1929,” stated economists at Capital Economics.⁷

The aftermath of such a correction could be significant. Capital Economics projects that between now and the end of 2033, US stocks will deliver average annual returns of just 4.3%. That is well below the long-term average of about 7% after inflation. This stands in stark contrast to the 13.1% average annual returns delivered by US stocks over the past decade.

Conclusion

While no one can predict exactly when a market crash may occur, it’s always better to be prepared. Even as stocks hit historic highs, the adage “what goes up must come down” often holds true in financial markets. Diversifying your portfolio with physical precious metals can offer protection against potential stock market downturns. A Gold IRA, in particular, provides a way to safeguard your retirement savings with the historically stable value of gold, helping to balance your investments against market volatility.

Notes:
1. https://www.firstpost.com/tech/repeat-of-the-dot-com-bubble-us-stock-market-may-be-looking-at-massive-crash-because-of-ai-stocks-13788430.html
2. https://www.firstpost.com/tech/repeat-of-the-dot-com-bubble-us-stock-market-may-be-looking-at-massive-crash-because-of-ai-stocks-13788430.html
3. https://www.firstpost.com/tech/repeat-of-the-dot-com-bubble-us-stock-market-may-be-looking-at-massive-crash-because-of-ai-stocks-13788430.html
4. https://www.businessinsider.com/stock-market-crash-dot-com-bubble-similarities-ai-nvidia-roberts-2024-6
5. https://www.fool.com/investing/2024/06/29/nvidia-going-to-crash-history-weighs-in-big-clue/
6. https://www.businessinsider.com/stock-market-crash-dot-com-bubble-similarities-ai-nvidia-roberts-2024-6
7. https://www.msn.com/en-in/money/markets/the-ai-fueled-stock-market-bubble-will-crash-in-2026-research-firm-says/ar-AA1nLJvx

 

 

• Disappointing progress on inflation is stifling hopes for interest rate cuts this year
• Multiple Fed Board members warn rates will stay higher for longer
• A Gold IRA offers long-term portfolio protection from losses incurred due to high interest rates

No Relief from High Interest Rates in Sight

The Federal Reserve is signaling that relief from high interest rates may not come as soon as many had hoped. Despite earlier expectations of multiple rate cuts in 2024, Fed officials are now hinting at the possibility of only one cut, or even none, as they continue to grapple with persistent inflation. This stance has significant implications for the economy and retirement funds.

The Fed has kept interest rates high, between 5.25%-5.5%, since last July. Those are the highest interest rates since 2001. The stock market had surged earlier in the year on signals for three rate cuts in 2024. Now policymakers are hinting they may only cut rates once this year – or not at all. If a cut does happen, it wouldn’t occur until December.

¹

Inflation was back on the rise in April and March, up from both February and January. The prior dip in inflation that inspired rate cut hopes has largely been attributed to a temporary drop in fuel prices.

Fed Board Members Weigh In

Mary Daly – San Francisco Federal Reserve President: Daly said that there is still “more work to do” on bringing inflation down. And that “inflation is not the only risk we face.”² Daly warned that the Federal Reserve must “exhibit care” because rising unemployment is a growing risk.

Daly said demand must be further restrained to bring down inflation. But slowing the market can result in higher unemployment.

Daly did not know how much rates needed to drop to navigate between bringing inflation under control and stalling the economy. The Fed is prepared to hold rates higher for longer if that’s what their data points them to.

Daly is against preemptive cuts to avoid a recession. “We’re going to be resolute until we finish the job. That’s why not taking preemptive action when it’s not necessary is so important.”³

Neel Kashkari – Minneapolis Federal Reserve President: Kashkari said it could take up to two years to get inflation down to the Fed’s 2% target. He indicated that wage growth was too high to reach that target right now.

Michelle Bowman – Federal Reserve Governor: Bowman stated she is open to raising rates if inflation doesn’t drop.

Bowman said, “I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse.” Bowman said she does not project any rate cuts happening this year. She has instead shifted those into future years.⁴

Reducing rates too soon could risk reigniting high inflation, she warned. That would require additional rate increases to tame price pressures within the economy.

Lisa Cook – Fed Reserve Governor: Cook is optimistic inflation will show more progress in 2025, allowing the Fed to lower rates eventually. She sees supply and demand in the labor market coming into better balance. But, to her, economic risks remain. Risks include higher credit card delinquency rates and tighter credit conditions. Along with the difficulty in assessing economic data that has come under continuous and significant revision.

Austan Goolsbee – President of the Federal Reserve Bank of Chicago – Goolsbee said if he sees “more months” of improving inflation data, then he would be open to cutting rates. Overall, the FOMC, the board that decides cuts, is waiting on hard evidence that inflation is hitting their target before they make any cuts.

Impact of High Rates

High interest rates, slowing growth and lingering inflation are a formula for stagflation. JPMorgan CEO Jamie Dimon said, “I look at the range of outcomes and again, the worst outcome for all of us is what you call stagflation, higher rates, recession. That means corporate profits will go down.”⁵

When interest rates stay high for a long time, it can negatively impact retirement funds. Higher rates cause bond values and stock prices to drop. A slower overall economy can drag down investments across the board. Money may not grow as fast as expenses, causing savings to shrink more quickly. Real estate can lose value too. It’s crucial for people to understand these effects and plan accordingly for their future.

Owning physical gold can act as a hedge against the negative effects of higher interest rates. Gold often maintains or increases its value during economic uncertainty. It can potentially offsetting losses in bonds and stocks when interest rates remain high for extended periods. A Gold IRA offers long term portfolio protection from losses incurred due to high interest rates. To learn how you can start protecting your fund today, call American Hartford Gold at 800-462-0071.

Notes:
1. https://fred.stlouisfed.org/series/DFEDTARU
2. https://www.reuters.com/markets/us/feds-daly-inflation-not-only-risk-policy-must-exhibit-care-2024-06-24/
3. https://www.cnbc.com/2024/06/25/fed-governor-bowman-says-shes-still-open-to-raising-rates-if-inflation-doesnt-improve.html
4. https://www.cnbc.com/2024/06/25/fed-governor-bowman-says-shes-still-open-to-raising-rates-if-inflation-doesnt-improve.html
5. https://www.cnbc.com/2024/05/23/jpm-jamie-dimon-us-could-see-hard-landing-stagflation-is-worst-outcome.html

 

 

 

• The CBO released a new report stating the deficit is increasing faster than just a few months ago
• Servicing the growing interest on the debt may sink the government into a doom loop that ends with a bankrupt nation
• Moving assets into physical gold and silver can preserve purchasing power as the value of the dollar collapses from debt

New CBO Warning

A new Congressional Budget Office report warns that Congress and the White House must get serious about getting the national debt under control. The federal budget deficit will reach nearly $2 trillion this year – the third largest in US history (behind pandemic era relief spending). That is 27% higher than February’s forecast due to the latest glut of government spending. The CBO warned that the rapidly rising debt is putting the nation at risk of a financial crisis. ¹

The projected deficit increase was tied to student debt cancellation, bank failure bailouts, and funding for foreign aid. The annual deficit is expected to keep growing. It is predicted to top $2.8 trillion in ten years. This increase is on top of growing mandated spending for programs like Social Security and the higher cost of paying interest on the debt. ²

The national debt as related to the size of the GDP is also growing. As of now, it stands at 99% – the debt is essentially the same size as the US economy. Interest on the debt will exceed spending on defense this fiscal year.

Debt held by the public is projected to rise from around $28.2 trillion this year to more than $50 trillion in 2034. That translates to 122% of the GDP – a historical record high for the US, beating 106% after World War 2. ³

⁴

Effect on Individual Americans

The CBO found the debt will slow the growth of American household income and economic growth. The estimated GDP per person is considered a measure of average income. Right now, it is about $84,000. The CBO projects that if the debt remains stable, that income will increase to $128,000 by 2054. But if the debt grows as the CBO projects, that income is $123,000. Meanwhile, the nonpartisan Committee for a Responsible Federal Budget estimates income would slow by about one third to $114,100. ⁵

Household income would shrink due to the “crowding out effect.” Excessive government spending to service the debt drags down the economy by crowding out more productive investments that improve American living standards.

Essentially, the government sells bonds to borrow money. Investors choose the bonds over private sector investment because the government has been forced to offer high rates of return. For example, instead of buying a corporate bond, stock, or putting money in the bank, someone buys federal bonds.

This results in less investment in the private economy. Over time, this means fewer buildings, machines, equipment, and software innovations. Consequently, wage and income growth slow down. This process happens gradually, little by little.

In addition, higher levels of government debt cause interest rates to rise. So as your income slows, your expenses accelerate, like your house and car loans. And the federal government is spending more on interest, so it cannot provide stimulus or relief.

Conclusion

Th CBO strongly advises that Congress and the White House need to act now. The problem is only going to grow exponentially worse, requiring stricter solutions the later it is addressed. However, a highly divided government seems unlikely to make the compromises necessary to curb the debt. Raising taxes and cutting services, especially in an election year, are non-starters.

Left unchecked, the debt will erase the value of the dollar. With their intrinsic value, physical precious metals can preserve purchasing power as the currencies collapse. A Gold IRA can secure your retirement funds for the long term. Contact American Hartford Gold today at 800-462-0071 to learn how.

Notes:
1. https://www.foxbusiness.com/politics/federal-budget-deficit-reach-nearly-2-trillion-year-cbo-projects
2. https://www.foxbusiness.com/politics/federal-budget-deficit-reach-nearly-2-trillion-year-cbo-projects
3. https://www.foxbusiness.com/politics/federal-budget-deficit-reach-nearly-2-trillion-year-cbo-projects
4. https://www.pgpf.org/sites/default/files/ltbo-2022-chart-1.jpg
5. https://www.foxbusiness.com/economy/rising-national-debt-reduce-americans-income-growth-report

 

 

 

• Investors are leaving an overheated stock market in record numbers
• They are driven by fear fed by years of high interest and inflation rates, political chaos, and geopolitical conflict
• Physical precious metals, especially in a Gold IRA, can diversify and protect retirement savings from stock market volatility

Investors Beat a Retreat

Economic data is pointing to some concerning trends underlying the current stock market rally. According to the numbers, US stock market is shrinking. Just as billionaires did months ago, regular investors are pulling their money out at a near-record pace.

Seen as an omen of economic trouble, Americans are strategically moving their assets to safe haven physical precious metals.

Fear is currently driving the market according to CNN’s Fear and Greed Index. The fear is fed by years of high interest and inflation rates, political chaos, and geopolitical conflict. Morgan Stanley said, “Summer 2024 may prove volatile with momentum stalling.” The market already big swings as traders react to unexpected economic data. The presidential election is only going to increase the volatility.¹

Investors are losing their taste for risk and are retreating. Bank of America said their clients have been net sellers of stocks for five weeks in a row. They sold off $5.7 billion more in stocks than they purchased. That is the highest outflow since last July.

A sign that the market is in retreat is the shrinking number of public companies. JPMorgan CEO Jamie Dimon said,” The total [of public companies] should have grown dramatically, not shrunk.” He expressed concern about the implications by following up with, “This trend is serious.”²

Americans Squeezed

The retreat may go beyond simply avoiding risk. Some Americans are being squeezed out of the market. Rent, gas, food, and childcare cost 15%-40% more today than they did just three years ago. Inflation is causing 46% of US middle class workers to slash contributions to their retirement funds according to a Primerica survey. ³

The survey continued to find that 67% say their income is falling behind the cost of living. Average paychecks have risen but fallen short of the higher cost of living. As result, 36% are using credit cards to keep up with expenses. Credit card debt is now at record highs. The problem is worsened because higher interest rates have made debt increasingly expensive. With credit cards maxed out, Americans are being forced to rein in even essential spending. ⁴

The pausing of retirement contributions can have long term ramifications. American are going to be finding themselves unable to retire comfortably, if at all. The Primerica survey revealed almost 80% of respondents don’t think they’ll be better off next year. Meaning the retreat is likely to continue.

A Strategic Retreat

American may be pulling out the market to secure their gains. Or they may be forced to cover their expenses. Whatever the cause, exiting the market now might turn into a fortunate decision.

Richard Bernstein is the chief investment officer of the RBA hedge fund. He says the mega-caps stocks are overvalued and risk a big correction. As of now, the top 10 stocks in the S&P 500 make up 35% of the benchmark’s total value. That is the highest percentage ever recorded. And Goldman Sachs economists said the market looks to be the most overvalued since 1932.

⁵

Bernstein predicts the losses from a correction could rival the dot-com crash. After the boom in internet stocks, the Nasdaq Composite dropped 78% from its peak. Tech stocks continued to struggle over the next 14 years. A “lost decade” in the stock market followed, with the S&P 500 losing 1% from 1999 to 2009.⁶

Bernstein said, “Fundamentally, it makes zero sense. The bond market is saying corporate profits are going to be strong … but the equity market with this incredibly narrow leadership of seven companies is saying that it’s an apocalyptic earnings outlook. I think the stock market’s in a bubble and the bond market is right.”⁷

Time to Diversify

Modern portfolio theory stresses diversifying your assets when the stock market is overvalued and on the verge of crashing. Converting assets into physical precious metals is a time-tested diversification strategy. Gold has historically maintained its value during economic downturns, offering a safe haven against inflation and recession.

Conclusion

As money becomes tighter, each decision about saving for your retirement carries greater weight, necessitating assets that can preserve wealth. Unlike stocks, which can plummet during market corrections, gold typically retains or even increases in value, providing stability and protection for your portfolio. By including gold, you mitigate risk, ensuring a portion of your nest egg is safeguarded against the volatility and uncertainties of a financial crisis. And by opening a Gold IRA, you can gain tax advantages along with the wealth protection benefits of physical precious metals. Call us today at 800-462-0071 to learn more.

Notes:
1. https://www.cnn.com/2024/06/05/investing/premarket-stocks-trading/index.html
2. https://www.cnn.com/2024/06/05/investing/premarket-stocks-trading/index.html
3. https://moneywise.com/retirement/middle-class-workers-are-slashing-or-cutting-contributions-to-retirement-funds
4. https://moneywise.com/retirement/middle-class-workers-are-slashing-or-cutting-contributions-to-retirement-funds
5. https://markets.businessinsider.com/news/stocks/stock-market-outlook-correction-dot-com-bubble-crash-buy-opportunity-2024-6
6. https://markets.businessinsider.com/news/stocks/stock-market-outlook-correction-dot-com-bubble-crash-buy-opportunity-2024-6
7. https://markets.businessinsider.com/news/stocks/stock-market-outlook-correction-dot-com-bubble-crash-buy-opportunity-2024-6

 

 

• Gold’s record-breaking ascent is fueled by numerous drivers
• Excess money printing, geopolitical conflict, central bank purchasing and fears over the national debt are giving gold tailwinds
• Now is an opportune time to add protect portfolio value with physical precious metals

Gold Prices on the Rise

In recent months, gold has been reaching new all-time highs as it continues its upward trajectory. With numerous factors behind the upswing, now is an opportune time to protect your retirement funds with physical precious metals.

Multiple Drivers Impacting Gold Prices

Gold’s current rise is not just an economic blip; it’s backed by multiple strong drivers:

Significant Money Printing: Since 2020, there has been a substantial increase in money printing, which is now starting to take effect on the economy. From 2020 to 2024, the M2 money supply increased from $15 trillion to $22 trillion. This has decreased the purchasing power of the dollar by 25-30%. People are turning to gold as a store of value as the oversupplied dollar depreciates.

Geopolitical Conflict: Ongoing major conflicts around the world are spurring safe haven demand and contributing to the upward pressure on gold prices.

Central Bank Purchases: Central banks are buying gold at the fastest rate in 55 years, further driving up demand. They seek to fortify their own economies with gold by hedging against inflation, moving away from the dollar, and securing against potential sanctions.

National Debt: Crossing $34 trillion and climbing fast, the national debt is at crisis levels. But the government is unwilling to cut spending. Already costing more than defense, the cost to service the runaway debt could strangle all government services, including Social Security. Americans are buying gold to protect against inevitable inflation and collapse.

Gold as a Response to Economic Uncertainty

Given these factors, it’s no wonder that investors are flocking to gold. Gold offers stability in times of economic uncertainty and has historically been a trusted store of value. The increasing cost of gold in terms of dollars reflects the declining trust in the US dollar and government policies.

Investment banks are predicting even higher gold prices by the end of the year and beyond. Experts believe that if we see any rate cuts or economic instability, gold prices could soar even higher. Interest rate cuts could push gold to $2,700 an ounce. Meanwhile, some analysts say further bank failures or election chaos could see gold reaching $3,000 an ounce or higher.

Considering Silver

For those looking for a more accessible option, silver is also worth considering. Currently valued at around $28 an ounce, silver has significant upside potential. It’s investment and industrial demand are at historic levels while production deficits are unable to keep up. It’s not just a less expensive alternative to gold but also a valuable hedge in a recession or rate cut environment.

Conclusion

Gold has stood the test of time as a reliable store of value. It isn’t just a safe haven; it’s a smart diversification tool. It acts as an insurance policy against currency devaluation and economic instability. In today’s volatile economic environment, having a portion of your portfolio in gold makes sound financial sense.

Contact American Hartford Gold today at 800-462-0071 to learn more about how you can secure your financial future with a Gold IRA.

• The threat of a banking crisis caused by the failing commercial real estate sector is increasing
• Academic and Government research points to a growing number of banks vulnerable to failure
• Americans are seeking to shelter their assets in physical gold and silver before the chaos erupts

Bank Risks Increase

High interest rates and plummeting demand have put the commercial real estate sector on the edge of collapse. As overexposed regional banks teeter on the brink of crisis, studies show large banks are also at risk. Things look like they are going to get worse before they get better as the prospect of a full-blown banking meltdown emerges. Americans are seeking to shelter their assets in physical gold and silver before the chaos erupts.

Regional banks have been at increasing risk from the collapsing commercial real estate (CRE) market since the Fed started their aggressive rate hikes. The risks stem from the repricing of CRE loans at higher rates as the real estate cycle turns. Banks are stuck holding mortgages and construction loans that are underwater compared to plunging property values.
Now, that risk seems to be spreading to larger banks.

¹

While not to the extent as regional banks, big firms are exposed to CRE risk from direct loans. But they are also at risk by indirect lending to Real Estate Investment Trusts (REITs). REITs are firms that buy and operate commercial real estate, selling shares to investors who want to gain exposure to the space.

However, these vehicles are often debt dependent. They are vulnerable to high interest rates. With higher-for-longer rates depressing revenue, investors are antsy to get their money out. With the rise in redemption requests, the REITs have tapped the banks for more credit. The number of REIT credit lines extended is increasing faster than other forms of borrowing. The lenders are putting themselves in a dangerous position if a crisis hits.

A new study says the greater exposure to commercial real estate debt increases overall systemic risk. When commercial real estate REITs heavily draw on credit lines during widespread financial stress, it can seriously impact the largest banks. This means that the overall risk from commercial real estate is likely much higher than what the banks’ direct exposure suggests. REIT loans raised the largest bank’s exposure by about 40%.²

More Banks at Risk

A Florida Atlantic University study found a growing number of banks facing failure due to the exposure to commercial real estate. They identified that 67 of the largest US banks have CRE loans exceeding 300% of their total equity capital. Regulators consider that level excessively risky. ³

The study cited Flagstar Bank and Zions Bancorporation as the highest risks. Flagstar’s CRE portfolio comprised a stunning 553% of its equity. Zions was 440% of its equity. Both banks rely heavily on uninsured deposits. This makes them extremely vulnerable to bank runs.

“Should another bank fail, depositors may pull money from these highly exposed banks, potentially triggering a banking panic reminiscent of last year,” study authors warned. ⁴

The FDIC Sees Risk

The government is recognizing the growing risk of a banking crisis. The Federal Deposit Insurance Company (FDIC) increased the number of banks on its “Problem Bank List.” It went up from 52 to 63. The number of banks on the watch list is 60% greater than the quarter preceding the collapse of Silicon Valley Bank (SVB). The bank run on SVB triggered a national panic. It helped fuel the collapses of First Republic and Signature Banks.

The FDIC found the amount of exposed assets rose to $82.1 billion. Alongside the increase in endangered banks was an increase in the number of unrealized losses. More than $517 billion in losses are now being held. ⁵

Wall Street Weighs In

Morgan Stanley warned commercial real estate prices could crash 40% in a disaster worse than the financial crisis of 2008.

“More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points,” their analysts said. High borrowing costs and tighter credit conditions could raise difficult hurdles for big real estate investors as they seek to refinance a mountain of loans.

Morgan Stanley says the damage won’t stay contained to the property owners and banks. It will extend to “interconnected business communities, private capital funders and owners of any underlying securitized debt,” they note. “The tech and consumer discretionary sectors will not be immune.”⁶

Conclusion

High interest rates and plummeting demand are devastating the commercial real estate sector. No longer limited to regional banks, its collapse threatens to spark a full-blown banking crisis. The impact of which could undermine the entire financial system in a way not seen since the Great Financial Crisis of 2008. That crisis caused retirement savers to lose up to 50% of their funds. With the writing on the wall, now is the time to protect your portfolio with physical precious metals. A Gold IRA from American Hartford Gold can help secure your financial future. Call 800-462-0071 to learn how today.

Notes:
1. https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iNNwTUUX4yY4/v3/620x-1.jpg
2. https://www.businessinsider.com/commerical-real-estate-crisis-bank-debt-contagion-reits-cre-lending-2024-5
3. https://www.mpamag.com/us/specialty/commercial/commercial-real-estate-loans-put-67-banks-at-risk-of-collapse/492047
4. https://www.mpamag.com/us/specialty/commercial/commercial-real-estate-loans-put-67-banks-at-risk-of-collapse/492047
5. https://dailycaller.com/2024/06/04/regulators-announcement-red-flag-banking-industry/
6. https://markets.businessinsider.com/news/stocks/commercial-real-estate-prices-outlook-crash-financial-crisis-morgan-stanley-2023-4?_gl=1%2A171pvcl%2A_ga%2AMTY0OTQ1MjIyNS4xNjU2NTA4ODQ3%2A_ga_E21CV80ZCZ%2AMTY4MDY5MDY4Ny44NjkuMS4xNjgwNzAyMzc0LjYwLjAuMA..&utm_medium=referral&utm_source=yahoo.com

 

 

• Some analysts see record setting stock prices as a prelude to a bursting bubble, with prices dropping as much as 65%
• Recessionary forces could knock the support out from overvalued stocks
• Americans can prepare for the stock crash by moving into safe haven assets like physical gold & silver in a Gold IRA

Looming Stock Market Crash

To some analysts, record-setting stock prices don’t seem to be climbing to new heights but rather racing towards the edge of a cliff. Facing potential overvaluation and recession, stock prices have been predicted to crash as much as 65%. Americans are cautioned not to let over-optimism and fear-of-missing-out prevent them from protecting their assets from a major market correction.

The warnings of an impending crash are coming from several sources. John Higgins of Capital Economics says stocks are in a late-stage bubble. That means stocks are in for a steep rally before the bubble bursts. He points to the S&P 500 and DJIA hitting record highs recently. “Bubbles tend to inflate the most in their final stages as the excitement sort of reaches fever-pitch,” Higgins warned.¹

Higgins says that today’s hype around AI resembles the dot com bubble of the 90s. When that bubble burst, the Nasdaq lost 77% peak-to-trough in the early 2000s. The overall market saw $5 trillion in value wiped out in a couple of years. According to Capital Economics, the bubble could burst as soon as the end of next year. That would be five years, the length of the dot-com bubble. ²

³

Warnings from Wall Street

Some Wall Street veterans are taking a bearish view of the current stock market rally.

Gary Shilling is an American financial analyst and commentator who appears regularly in publications such as Forbes, The New York Times, and The Wall Street Journal. He correctly identified the US housing bubble in the mid-2000s. Shilling expects a recession to hit by the end of the year. He thinks a weakening labor market will crush investor confidence. As a result, the stock market could fall as much as 30%. “You look at all the kind of speculation that we’ve had out there, it’s indicative of a lot of overconfidence, and that usually gets corrected and corrected violently,” said Shilling.⁴

John Hussman is the president of Hussman Investment Trust. He correctly predicted the sharp downturns in 2000 and 2008. He thinks the S&P 500 is trading at similar extremes last seen in the run-up to the 1929 Great Depression. Hussman thinks the S&P could crash 65% based on a combination of “extreme valuations, unfavorable market internals, and dozens of other factors.” A loss that size would wipe out a decade of gains.⁵

BCA Research strategist Roukaya Ibrahim warned that a 30% correction in the stock market could be sparked by a recession early next year. He thinks overvalued stock prices and slowing growth will send the S&P back down to 3600. Ibrahim points to the April employment report which signaled an economy in decline. “Eventually, the unemployment rate is going to take higher and that’s going to lead to concerns about a recession,” Ibrahim said.⁶

Market Indicators

One indicator going off is the ‘Hindenburg Omen’. It has predicted two previous stock market crashes. The ‘Hindenburg Omen’ indicator considers the percentage of stocks in an exchange making 52-week highs and lows, along with other market breadth metrics, to assess the potential for a market crash.

The indicator successfully predicted the 1987 market crash and the 2008 financial crisis. And it is sounding the alarm again. Now it is going off despite record market highs. Poor market breadth is the cause for concern. Only a handful of stocks are buoying the whole market.

Other signs are showing that the economy is heading towards recession. A recession could crater stock prices.

Top economist David Rosenberg points to the Sahm Rule. Rosenberg famously predicted the 2008 recession. The Sahm Rule is a way to identify the start of a recession using the unemployment rate. It signals a recession if the three-month average unemployment rate rises by 0.5 percentage points or more above its lowest point in the previous 12 months. The rule is about to go into effect. Unemployment ticked higher than 3.9% in April. In addition, manufacturing shrank for the 17th month out of the last 18 months.

The Fed’s “higher for longer” interest rates are also pushing the economy towards a hard landing. Albert Edwards, the Societe Generale strategist, said, “”I believe the Fed is sowing the seeds of yet another policy disaster.” He maintains that decades of near zero interest rates fueled speculative bubbles that kept “bursting in their faces.” And now, he thinks, suddenly high interest rates are going to burst the AI bubble. ⁷

Conclusion

While it may seem that record setting stock prices may never end, forecasters are warning to brace for a crash. The meteoric rise will inevitably fall. The question is how hard and how fast. According to some analysts, everything will be great until it isn’t. Then prices could drop 65%, devastating retirement funds. Now is the time to prepare for a market drop by learning how a Gold IRA can protect the value of your funds. Contact American Hartford Gold today at 800-462-0071 to learn more.

Notes:

1. https://markets.businessinsider.com/news/stocks/stock-market-crash-prediction-dot-com-bubble-correction-economy-recession-2024-5
2. https://markets.businessinsider.com/news/stocks/stock-market-crash-prediction-dot-com-bubble-correction-economy-recession-2024-5
3. https://m.foolcdn.com/media/dubs/images/stock-market-bubble-infographic.width-880.png
4. https://markets.businessinsider.com/news/stocks/stock-market-crash-predictions-recession-soon-inflation-corporate-profits-decline-2024-5?utm_medium=ingest&utm_source=markets
5. https://markets.businessinsider.com/news/stocks/stock-market-crash-predictions-recession-soon-inflation-corporate-profits-decline-2024-5?utm_medium=ingest&utm_source=markets
6. https://markets.businessinsider.com/news/stocks/stock-market-crash-predictions-recession-soon-inflation-corporate-profits-decline-2024-5?utm_medium=ingest&utm_source=markets
7. https://www.businessinsider.com/stock-market-crash-recession-warning-signs-interest-rates-fed-edwards-2024-5?utm_medium=ingest&utm_source=markets&_gl=1*1eqjxbf*_ga*MjEyNjU3MzkyMi4xNjYyNDEwODU4*_ga_E21CV80ZCZ*MTcxNjk5ODIzOC4xNDkuMS4xNzE2OTk4MzEwLjU5LjAuMA

 

• Silver prices are reaching new heights and are predicted to keep climbing
• Record industrial and investor demand are far outstripping supply, supporting high prices
• With safe haven benefits and a lower entry point than gold, now is an opportune time to add silver to your Gold IRA

Silver Prices on the Rise

As gold shatters records week to week, silver is carving its own upward path. Individuals and hedge funds are flocking to silver to protect their wealth from rising inflation. Silver’s role as an industrial and monetary metal is creating a “perfect storm” to drive prices higher.

Because both metals are seen as safe investments during economic uncertainty, silver typically rising along with gold. And now is no exception. Silver is seeing its best prices in 11 years, trading at over $32 an ounce. Silver outperformed gold in recent weeks. It gained 35% this year against gold’s 18% rise. It is finding support to stay over $31 an ounce with room to move higher. A Commodity Futures Trading Commission report showed traders are betting on silver to keep rising. Bullish positions are expected to increase now that silver has broken $30 an ounce. ¹

Market conditions have been building for silver’s breakout for a while as industrial demand fuels part of the spike. Used in solar panels and electronics, silver is an essential component of the global green technology push. Industrial demand hit a new high in 2023, for a third consecutive year, according to the Silver Institute.

Prices are being forced up as supply cannot keep up with demand. There are notable shortages in the supply of silver. Based on this, TD Securities predicts silver may break $50 an ounce. ²

The “Silver Squeeze”

There is now talk of a potential “silver squeeze.” A “silver squeeze” refers to a rapid increase in demand for physical silver that outstrips available supply, causing prices to surge. This phenomenon is often driven by coordinated buying efforts from retail investors or speculative traders. They aim to create an artificial shortage and force up prices.

The term gained prominence in early 2021 when a group on Reddit’s WallStreetBets forum attempted to replicate the GameStop short squeeze by collectively buying silver. Their goal was to force large institutional short sellers to cover their positions, theoretically sending silver prices skyrocketing. Their efforts had a temporary impact, driving prices up around 9%. However, the recent surge in silver prices has reignited talks of another potential squeeze in 2024.

Investor Demand – $50/oz silver?

Barring a silver squeeze, there’s still a rapid swelling of investor demand alongside industrial demand. Together, they can support higher silver prices. TDS Securities said growing demand could wipe out the above ground stocks of silver within 12 to 24 months.

A senior commodity strategist at Canadian Bank said, “The last time silver prices broke through $30/oz, it traded to $50/oz in less than ten weeks.”³ They think that if silver breaks above $30 per ounce, it could trigger a lot of ETF buying. This would reduce the available silver stocks at the London Bullion Market Association. The last time there was a big push to buy silver, it led to a huge demand of about 110 million ounces in a few days. That would cut the available silver by 35% if it happened again.

Gold/Silver Ratio

⁴

Analysts point to the gold/silver ratio to say that silver is just getting started as it plays catch up to gold. Silver’s recent rise has pushed the gold/silver ratio to 75 points. Its lowest since December 2022.⁵

The gold/silver ratio is a simple way to compare the prices of gold and silver. It tells you how many ounces of silver you need to buy one ounce of gold. For example, if the ratio is 80, you need 80 ounces of silver to get one ounce of gold.

When the ratio is high, like 80, silver is relatively cheap compared to gold, which can be a good time to buy silver. When the ratio is low, like 50, silver is more expensive relative to gold, making it a better time to buy gold instead.

The average gold/silver ratio over the past 20 years is approximately 68:1. Which means today’s ratio indicates that silver is relatively cheap compared to gold. It suggests that silver might be undervalued.

Silver in Uncertain Times

Silver’s rise is not surprisingly from a historical perspective. There is a correlation between spikes in silver prices and economic downturns. Recessions have historically been “ramp up” periods for silver prices, setting the stage for significant gains after the economic downturn.

During the Great Recession of 2007-2009, silver prices initially spiked. They reached a high of $19.24/oz in February 2008 before dropping to a low of $9.09/oz in October 2008 near the depths of the recession. However, after the recession ended, silver prices surged again. They hit a post-recession high of $48.70/oz in April 2011, a 435.8% increase from the recession low. ⁶

Conclusion

Silver is breaching new highs and analysts think this is only beginning of a long bull cycle. Industrial and investor demand are soaring at the same time of record supply shortages. With safe haven benefits and a lower entry point than gold, now is an opportune time to learn if adding silver to your portfolio or Gold IRA is right for you. Contact American Hartford Gold today at 800-462-0071 to learn more.

Notes:
1. https://www.kitco.com/news/article/2024-05-21/silver-eyes-50-td-securities-predicts-major-breakout-after-31-support-holds
2. https://www.kitco.com/news/article/2024-05-21/silver-eyes-50-td-securities-predicts-major-breakout-after-31-support-holds
3. https://www.kitco.com/news/article/2024-05-21/silver-eyes-50-td-securities-predicts-major-breakout-after-31-support-holds
4. https://www.usatoday.com/money/blueprint/investing/silver-price-05-22-2024/
5. https://www.usatoday.com/money/blueprint/investing/silver-price-05-22-2024/
6. https://www.silverinstitute.org/silverprice/2000-2010/#:~:text=During%20the%20first%20half%20of,of%20generally%20firm%20fabrication%20demand.

 

• Personal and national debt are reaching epic, dangerous proportions
• Unchecked debt could drive the economy into deep recession
• Americans are protecting their assets from the consequences of runaway debt with Gold IRAs

Debt Skyrockets

Personal and national debt are both on a dangerously sharp upward trajectory. As auto loan and mortgage delinquencies rise, credit card delinquencies skyrocket. At the same time, Wall Street leaders are loudly calling for action on an unfolding national debt crisis. The unchecked debt of citizen and nation threatens to undo both.

Credit Card Delinquencies Hit New High

Americans are turning to their credit cards to pay for sky high prices. Now, the New York Federal Reserve data show a growing number of Americans are falling behind on their credit cards. Considered a sign of worsening financial distress, credit card delinquencies are at a 3-year high. Delinquencies have surpassed pre-pandemic highs. They rose from January to March and continue to go up.

The percent of balances in serious delinquency is at its highest level since 2012. The Fed admitted they don’t know exactly what is behind the increase in delinquencies. One theory is that excess savings are gone. And though the job market looks strong, Americans are losing their jobs and then getting new ones at a lower salary. However, nonstop inflation is the likely prime candidate. Cumulative inflation on necessities like food and rent is over 18%.

¹

Achieve is a digital personal finance company. Their survey showed the main reasons were inflation and a reduction in work and income. It cited high interest rates as making it harder to pay down debt. A quarter of consumers reported reducing their spending over the past three months. That doesn’t bode well for this economy, 70% of which is based on consumer spending.

Economists are worried because the rise in credit card usage is coming when interest rates are astronomically high. APR hit a new record average of 20.72% last week. Rates are high because of the Fed’s aggressive policy to try and tame inflation. ²

Household debt rose $184 billion the first quarter of this year and is now at $17.69 trillion. One in five credit card users are dubbed “maxed-out borrowers” because they used at least 90% of their available credit. One third of this group has gone delinquent in the past year.³

So Goes the Nation

As personal debt is wreaking havoc on individuals, the national debt is putting the country in crisis. The national debt recently surpassed $34 trillion. It is on course to exceed $45.7 trillion within a decade. That is more than 110% of the gross domestic product.⁴

Interest payments are the fastest growing segment of the budget. Interest on the debt has almost doubled to $659 billion in 2023 from $345 billion in 2020. The US has hit a worrying milestone. In the first seven months of this fiscal year, interest payments on debt cost taxpayers more than what we spend on defense and Medicare. Only Social Security costs more right now. But in less than 30 years, paying interest on the debt might become our biggest expense. ⁵

High interest rates are making the problem worse. As the debt reaches unsustainable levels, it will contribute to a negative cycle of even higher interest rates. Social Security and Medicare, the untouchable ‘third rail’ of politics, will see automatic cuts in the coming years if the government doesn’t act. All retirees would face a 21% cut in Social Security benefits in just nine years. Medicare will face similar cuts in 12 years. ⁶

The Government Non-Response

Goldman Sachs CEO David Solomon said the US policymakers need to focus on the ballooning national debt. He warned that the government’s “ability to spend without constraint is not unlimited.” “Ultimately,” he said, ” the market will challenge” the federal government’s free spending ways. ⁷

The Biden administration does not seem to be heeding such warnings. Biden unveiled a record $7.3 trillion election-year budget. It increases social spending while taxing businesses and high earners.

“Continuing to ignore these warnings puts beneficiaries at risk, creates economic uncertainty and adds to our fiscal challenges,” Michael Peterson, CEO of the Peter G. Peterson Foundation, said. “In fact, we haven’t been this close to the depletion of Social Security since the last bipartisan reforms done in 1983.”⁸

A Republican proposal for a bipartisan commission about the debt is dead in the water. Proposed over six months ago, it collapsed from left-wing fears of spending cuts and right-wing fears of new taxes. More than 100 Democratic lawmakers signed onto a letter opposing the commission.

Conclusion

Debt on a macro and micro level is posing a grave threat to individuals and the country. Both are sinking into a debt spiral where mounting interest payments and continued borrowing choke off beneficial spending. The mirror results of which end in a deep recession. And unfortunately, no one is taking measures to solve either problem. The bill for Americans and America is coming due and it looks like it is going unpaid. Economic volatility and recession are likely to follow. People interested in protecting the value of their retirement funds are investigating the benefits of physical precious metals. In particular, a Gold IRA is designed to safeguard funds from the consequences of runaway debt. Contact American Hartford Gold today at 800-462-0071 to learn more.

Notes:
1. https://www.cnbc.com/2024/05/14/credit-card-delinquencies-rise-as-more-gen-zers-are-maxed-out-ny-fed.html
2. https://www.foxbusiness.com/economy/credit-card-delinquencies-are-surging
3. https://thehill.com/business/4665135-credit-card-delinquencies-surge/
4. https://nypost.com/2024/05/13/business/goldman-sachs-ceo-david-solomon-raises-alarm-on-us-debt/
5. https://www.usatoday.com/story/opinion/columnist/2024/05/14/biden-national-debt-payments-social-security/73670903007/
6. https://www.usatoday.com/story/opinion/columnist/2024/05/14/biden-national-debt-payments-social-security/73670903007/
7. https://nypost.com/2024/05/13/business/goldman-sachs-ceo-david-solomon-raises-alarm-on-us-debt/
8. https://www.usatoday.com/story/opinion/columnist/2024/05/14/biden-national-debt-payments-social-security/73670903007/