Gold does well during inflation, recession: Is gold or real estate a better investment? - Jeff Clark
(Kitco News) - Federal Reserve Chairman Jerome Powell stated last week that the U.S. economy is not in a recession. Biden administration officials appear to agree, including National Economic Council Director Brian Deese and Treasury Secretary Janet Yellen.
Powell went on to remark that he does not rule out further rate hikes, after the FOMC increased its benchmark target by 75 bps.
"The Fed is a marketing machine, not necessarily a truth machine," said Jeff Clark, Senior Precious Metals Analyst at GoldSilver.com. "They're going to talk down bad news, and try to keep the economy strong and people encouraged, and not cause any kind of panic."
Clark said that recessions and inflation have been historically good for gold. He spoke with David Lin, Anchor and Producer at Kitco News.
Recessions and Gold
The difference between 10-year Treasury yields and 2-year Treasury yields, otherwise known as the yield curve, is a "bellwether" that portends a recession, said Clark.
"Every time that figure has gone negative, we went into a recession after that," Clark explained. "That indicator has predicted every single recession since 1980."
Currently, the St. Louis Fed reports that the difference between the 10-year and 2-year yields is -0.22.
"Whether or not we're in a recession right now, this very reliable indicator is saying a recession is coming, which means we should all prepare for that," Clark commented.
One of Clark's preferred investment assets, as a safe haven during recessions, is gold.
"I went back and looked at every recession over the past fifty years," said Clark. "There were eight of them in the U.S., and gold… has risen in six of the last eight recessions… In the two that it declined, the declines were very mild, like single digits."
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Gold, the Inflation Hedge?
U.S. inflation is 9.1 percent in June, the highest it has been since 1981. However, gold has not been keeping pace; the precious metal is down 2.3 percent year-to-date.
This is because gold lags inflation, said Clark.
"I went back to the last time we had really high inflation, which of course was the 1970s, and looked at the correlation between gold's movement and movement in the CPI" he explained. "The correlation is indeed very high, but what I discovered was that in the latter half of Seventies… there was a delay from when inflation spiked, until gold and silver prices moved… They eventually did respond and, of course, went through the roof back then."
However, Clark cautioned that there were factors beyond just GDP and CPI that influence gold prices.
"In the big picture, I'm not just looking at the inflation issue," he said. "I'm looking at any type of crisis that is going to push more and more investors into the gold market."
To find out Clark's views on whether real estate or gold is a better investment, watch the above video.
Follow David Lin on Twitter: @davidlin_TV
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