Gold once again defied the bears by bouncing back Tuesday on new signs that the U.S. economy is teetering on the edge of a recession.
An early slide in oil prices also helped pressure stocks and sparked fresh flights into gold, especially after Federal Reserve chief Janet Yellen confirmed last week that earnings expectations have declined.
Investors are taking off riskier assets in the S&P 500 and other equities, and looking to come back into safety like gold, RJO Futures strategist Phil Streible told Bloomberg. Gold looks like a nice place to park some money.
Trade deficit helps kill GDP: The catalyst for renewed recession fears in the U.S. was the trade deficit for February, which rose to six-month highs, hitting $47.1 billion, the Commerce Department said Tuesday.
As a result of that widening deficit, U.S. GDP estimates took another hit. The Atlanta Federal Reserve slashed its growth forecast from 0.7% to 0.4%, citing the deficit as well as yesterday morning’s light vehicle sales release from the U.S. Bureau of Economic Analysis and the manufacturing report from the U.S. Bureau of the Census.
Thus, growth is inching closer toward negativity. A separate CNBC/Moody’s Analytics measure put growth at just a slightly better 0.5%, but the network conceded that given the average, and substantial, revisions to government GDP data, that 0.5% could easily turn into a negative number.
Recession never appears obvious: To those who would say there is no evidence of a current recession, Lance Roberts of RealInvestmentAdvice.com made the observation that on numerous prior occasions in U.S. history, growth looked positive just before the official downturn occurred.
Robert cited these figures:
January, 1980: 1.43%
July, 1981: 4.39%
July, 1990: 1.73%
March, 2001: 2.30%
December, 2007: 1.87%
Each of the dates above show the growth rate of the economy immediately prior to the onset of a recession, he wrote. You will remember that during the entirety of 2007, the majority of the media, analyst and economic community were proclaiming continued economic growth into the foreseeable future as there was no sign of recession.
Risks increasing, IMF says: Although International Monetary Fund chief Christine Lagarde denied Tuesday that the world is on the verge of another financial crisis, she took the opportunity to lament the global slowdown in growth.
We have growth; we are not in a crisis, she said in Germany. The not-so-good news is that the recovery remains too slow, too fragile, and risks to its durability are increasing.
The outlook is clouded by weak growth, no new jobs, no high inflation, still high debt all those things that should be low and that are high, she added.
Lagarde seemed to indicate that more potential money printing is the answer, praising the effectiveness of negative interest rates in some struggling economies. We see the recent introduction of negative interest rates by the ECB and Bank of Japan though not without side effects that warrant vigilance as net positives in current circumstances, she said.
Gold to $1,350, says analyst: Negative rates, particularly if they spread to even more countries, are great news for hard assets like gold and silver bullion and rare coins. Real assets such as land, property, commodities especially precious metals and collectibles would be favored, noted Satyajit Das.
Given the global growth malaise, its hard to imagine interest rates rising significantly anywhere soon. George Milling-Stanley of State Street Global Advisors recently addressed the pullback in the yellow metal, saying now is the time to stick with gold. Its quite possible that its heading to $1,350, he said.
Im not necessarily convinced that were necessarily going to get another pullback to $1,200 or below, he said of gold. Weve already had a little pullback from what, the $1,270 area was the best we hit in the first quarter. Weve had a decent pullback from that. Frankly, I dont think I would risk waiting (to buy). The dollar is looking a little stronger now, but its not looking like the monolith that it had been for the last four or five years and that had been putting pressure on gold. Similarly with equities; I know theyre back and positive territory for the first quarter, but theyre still looking very volatile compared to where they were. Nobody is talking about 10%-15% growth in equities either. So I think thats a pretty favorable climate for gold.