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LAWRIE WILLIAMS: Recession talk.  Gold might be the only positive.

Recession talk is in the air globally and it has been a difficult time for investors of virtually all ilks.  Equities, bitcoin and commodity prices have almost all been weakening and even the traditional safe havens of precious metals have been showing weakness in the face of an almost unprecedentedly strong U.S. dollar.  But beware, the strength in the dollar is almost entirely due, not to any outperformance of the U.S. economy, but to even more weakness elsewhere in the world.  Recession talk is virtually everywhere at the moment.

Technically most world economies are already in recession as defined as two successive quarters of negative growth, and if not already there are very definitely headed in that direction.  If that persists longer term we are possibly headed for a depression, the like of which we have probably not seen since the 1930s.  Perhaps the one consolation is that we have eventually come out of that stronger and more prosperous than ever, although it has taken a considerable amount of time, and the survival of a major world war, to do so.  Let’s hope that this time around it does not take a similar shock solution to snap us out of it, although the current signs have to be somewhat ominous.

We suspect there is still more downside ahead for general equities and bitcoin though and this is probably likely to be joined by a slump in household property prices which so far have remained relatively immune to the price falls elsewhere.  But we don’t think this sector of the market can escape relatively unscathed for much longer.  Mortgage rates will be rising along with higher interest charges, while disposable income is likely to be falling in relative value as inflation continues to rise.  True the rate of inflation rises may be starting to reduce a little alongside the recent reductions in commodity prices, but overall inflation levels are likely to remain well above central bank target levels as long as the Ukraine war continues - and there is little sign yet of an end to the ongoing conflict.

There has been some positive commentary/analysis on the likely path of the gold price this year from Goldman Sachs, Bloomberg Intelligence and Wells Fargo Bank which are all predicting $2,000 plus gold by the year-end.  On the other hand Capital Economics reckons gold could end the year at around $1,650 an ounce.  Quite a disparity of viewpoints, but a lot could happen in just under six months.  The forecast is a difficult one to make given the yellow metal’s recent very weak performance – it is sitting at around $1,730 as I write.  Our own view tends toward the bullish side at the $2,000 plus level by the year-end in line with the entities noted above, but this could change as the year progresses.

Silver, on the other hand, continues to disappoint its followers.  It has even slipped below the $19 level at the time of writing – its lowest point for just over 2 years and the Gold:Silver Ratio is back at over 91 and seemingly rising, which is a hugely negative position for gold’s sibling metal.  It is being hit by the weaker gold price and also by likely weaker industrial demand as recession seems to be looming or already with us.  It needs a decent turnaround in both for recovery to take place.

Of the pgms, platinum is just above its 2 year low, courtesy of a small upwards move yesterday, while palladium is back at around its start of year levels after a huge spike upwards in February.  Both are hugely dependent on the states of the economies in China, the U.S. and Europe in particular and with seemingly all heading into recession the portents cannot be considered positive unless there is an economic turnaround which, at the moment, seems unlikely. 

Not much joy ahead for investors therefore, except perhaps in gold if the heavy hitters quoted above are right in their predictions.  Maybe a big if!

13 Jul 2022 | Categories: Gold, Silver, China, Dollar, US, Russia, Platinum, Palladium, Bitcoin, inflation

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