Gold vs. Governments: Who's Right About the Recession?

Welcome to our newsletter, offering in-depth insights into the world of finance, investments, and precious metals. It's designed for those who want to actively manage their assets and make informed decisions in all economic conditions.

General Overview

• The US August jobs report showed the economy added 142,000 jobs, below the expected 164,000. The unemployment rate decreased from 4.3% to 4.2%.
• However, July jobs were significantly revised downward to only 89,000. The report raised concerns for Fed Chair Jerome Powell due to the weaker numbers.
• US Treasury Secretary Janet Yellen reassured the public that despite recent weak employment reports that have affected investor confidence, the US economy remains strong. Yellen emphasized that the economy is already deep in recovery and operating near full employment.??

Can we trust Janet Yellen's words?

• If we analyze her past statements, we must be extremely cautious.

What did the media say in 2007, before the 2007/2008 financial crisis?

What happened in 2007?

• In 2007, interest rates in the US were, as they are today, a very important topic, as they were closely linked to developments on financial markets and the impending global financial crisis. At the beginning of 2007, the US Federal Reserve (Fed) maintained interest rates at around 5.25%, which was the highest level at that time.
• The Fed began raising interest rates in 2004-2006 to prevent the economy from overheating. This was part of a cycle of interest rate hikes that the Fed implemented after a period of extremely low interest rates following the 2001 recession.
• Before the recession, interest rates in the US were relatively high (around 5.25% in 2007) as the Fed tried to cool the economy. However, when the crisis hit, the Fed drastically cut interest rates.
• By the end of 2008, interest rates had fallen to almost zero (0-0.25%). This downward trend continued in 2008, with interest rates falling to near zero levels to stimulate the economy, which was entering a severe recession.

How did we get out of the recession?

• The Federal Reserve cut interest rates and introduced unconventional measures such as quantitative easing. This injected large amounts of money into the financial system to stimulate lending and economic growth.
• By the end of 2009, the first signs of recovery began to appear, but it took several years for the global economy to fully stabilize and return to pre-crisis levels.

How does gold perform in a recession?

• Gold clearly stands out as a safe-haven asset in a recession. Since 1970, there have been 8 recorded recessions. On average, they lasted 11 months, and gold achieved an 11% annual return.

Central banks have been preparing for 2025

• Global net gold purchases by central banks reached 483 tonnes in the first half of 2024, the highest ever. This is 5% more than the previous record of 460 tonnes set in the first half of 2023.
• In the second quarter of 2024, central banks bought 183 tonnes of gold, 6% more than a year earlier. The biggest buyers were the National Bank of Poland, the central bank of India, and the central bank of Turkey. Why would central banks be hoarding gold right now?

Not just central banks... BRICS countries also want gold

• BRICS countries are developing a wide range of instruments to shape an inclusive international financial system with a newly created currency.
• The project being prepared by the BRICS countries envisages that the value of the common unit of account is tied 40% to the value of gold and the remaining 60% to a basket of national currencies of the BRICS countries

What about comparing gold to stocks (Dow Jones index)?

• The onset of recessions has a particularly negative impact on stock prices. The decline in the ratio between the Dow Jones index and gold is currently emerging again.
• This ratio shows that it is currently much better to have assets in gold than in stocks. This is also confirmed by history.

For any further questions and important strategies, I recommend individual advice. Pay attention to deteriorating economic performance and the media and prepare your finances for the future in time.

“Let’s listen to gold”.

Best regards until next time!

Peter

The newsletter "Financial View Peter Herman" does not constitute an investment advisory service. Its content does not constitute recommendations for purchase or offers to purchase. For all advice and suggestions, I am available with an individual consultation or via email [email protected].