Actually, the title is a little misleading. Recession isn’t coming, it’s here, and we’ll be lucky if it stops at recession. A recession, with deflationary pressure is a formula for depression.
We already had a whiff of deflation in gold prices last week as commodities sank in harmony with sinking equities markets. That small of a sample can hardly be used to justify a bigger trend and I’m not trying to make last week out to more than it is, but signs pointing to recession are hard to ignore at this point.
Not surprisingly it’s a commodity that points to the severity of the coming recession, except this time it’s copper. In 2008 we saw the same collapse in copper prices as global manufacturing demand cratered. Today we’re seeing a collapse in copper prices near 2008 levels, though not as steep.
So, what does that mean for next week? With the volatility indexes off the charts, weekly and daily predictions are going to contain a high degree of uncertainty.
In the long-term outlook it all depends whether unity breaks out in Europe and sanity in the U.S. At some point we’re going to have to face the fact that a little protectionism in our trade policy is not necessarily a bad thing.
Consumers are not going to get any relief from traditional investments like 401(k) plans, stock market investments or their real estate holdings. With employment shaky, most people are going to stay defensive both in mindset and strategy.
At this point I’m still seeing gold and silver as your best hedges against the future recession. Make small buys as prices decline with deflation and small sells as prices recover. Gold and silver may not always perform the best of any asset class, but they’ll always be worth something and some middle manager making a seven figure bonus won’t be able to find a way whittle away at your nest egg with new fees when it’s in your safe.
Most of you know I tend to recommend gold more as a hedge than an investment, but there are people who invest in gold quite successfully. If you’re going to buy gold as an investment, I would advise further education. Read up on books like All About Investing In Gold by John Jagerson, that cover gold investment strategies and options like margin accounts and gold ETFs.
Whether you’re buying gold as a hedge or investment, have your strategy in place before the next big crash rolls up on us.