Mike Fagan,
Editor
Nov. 4, 2022
Warning bells of an impending recession in the United States are ringing louder than ever now that the yield curve between the 3-month Treasury and the 10-year Treasury has inverted.
Such a yield curve inversion has proven to be a reliable indicator of recession ever since the late-1960s. And it usually means it’s coming within the next two to four quarters.
Imagine if you had lent money to someone for 10 years. Undoubtedly, you’d expect to be paid a higher rate of return than if you had lent that same amount of money for just three months, right?
Well, that’s all completely out of whack now. And it reveals that investors are anticipating a sharp decline in US economic growth over the next year or so.
It also means the Fed’s aggressive rate hike posture — which just saw its fourth consecutive 75 basis point hike on Wednesday — is likely to continue over the coming quarters.
Already, it’s the most aggressive pace of monetary tightening since the early-1980s, which was the last time inflation ran this high. That downturn, for those of us old enough to remember, led to a global recession from 1980 to 1983 that most economists agree was the most severe since World War II.
Today, it seems the Fed is once again waging a losing battle. Even with the record rate hikes it’s been administering, inflation remains stubbornly high at around 8.2% following a peak of 9.1% in June.
And keep in mind that the Fed’s target rate is 2% inflation… which feels lightyears from where we are today.
With companies across all sectors passing the buck of higher supply costs directly onto the consumer — and with consumers continuing to line up to absorb those exorbitant price increases — it’s difficult to envision a scenario where inflation gets back to that 2% target range anytime soon.
The broader indices seem to agree with that sentiment. Following October’s spirited bounce, the markets have resumed selling off on the heels of the Fed’s most recent hike and accompanying guidance.
Commodities across the board have been following suit, including gold, which looks poised to test the $1,600 level once again.
Yet, one thing forward-looking investors need to keep in mind is that gold tends to massively outperform during times of economic and geopolitical uncertainty.
For example, in the years immediately following the Great Recession of 2008, gold prices jumped more than 50% due to elevated volatility in the US financial markets.
Contrarians who saw the writing on the wall back then found themselves well-positioned to weather the storm by allocating a portion of their investment capital into the world’s only true safe haven asset — gold.
And if past is prologue… then that same scenario is about to repeat to the benefit of foresighted investors who position accordingly today.
A 50% rise in the gold price from today’s $1,630 level would put the yellow metal several hundred dollars above its all-time high at around $2,450 an ounce.
With yield curves and inflation pointing to recession… and with the situation in Ukraine worsening and the political divide in the US widening… contrarians will do well to position in gold and select gold mining equities now before that next inevitable leg up.
Keep in mind also that gold producers are already making a substantial profit at ~$1,600 per ounce gold… and they were turning in record profits back in 2020 when gold was only a few hundred bucks higher.
At that time, the average all-in sustaining cost (AISC) margin — which is the price of gold minus the cost to produce it — hit a record $828 per ounce.
That means for every ounce of gold a mining company produced in 2020, it got to pocket $828 on average… comfortably higher than the previous record of $666 set in 2011.
A move to $2,000-plus per ounce would easily set a new record for producers and would be an even bigger boon to gold explorers and developers with proven ounces in the ground in tier-one mining jurisdictions.
Here’s one such explorer/developer that has already discovered 4 million-plus gold ounces on their US-based project… and they’re currently drilling deeper to find even more.
In fact, the company just hit a long intersection of high-grade gold around 150 meters deeper than any previous drilling on their property.
Our own Nick Hodge recently returned from a site visit to the project where he met extensively with the company’s upper management and lead geologists.
He even produced a video presentation of his mine tour that you can watch here.
Click Here to View
With gold poised to move substantially higher in the coming quarters, this is exactly the type of high-potential gold opportunity contrarians need to be looking at now while others continue to lick their wounds wondering what to do next.
Mike Fagan
Editor, Daily Profit Cycle