Will We See A Recession And A Rally In Gold In 2019 Or 2020?

We will see a recession and a rally in gold in 2019 or 2020. True or false? We invite you to read our today’s article about ‘recession in 2020’ narrative and find out what it all means for the gold market.

Will We See a Recession and a Rally in Gold in 2019 or 2020?

114 months. So long is the current US economic expansion. It officially started in June 2009, and if the country avoids recession until July 2019, the uptrend in the business cycle will exceed 120 months, becoming the longest expansion since at least 1857, when the NBER began recording economy.

Last year, we analyzed the popular claim that “the current expansion is so long, that it must end soon”. Surprisingly for us, we reached similar conclusions to Janet Yellen, who said once that expansions do not die of old age.

However, many analysts present more sophisticated arguments for the upcoming crisis. For example, Morgan Stanley has recently estimated the odds of recession in the US at 15 percent in 2019 and 30 percent in 2020. Larry Summers, the former Treasury Secretary, has gone even further, putting the chances of a recession in the US within the next two years at about 50 percent.

Among institutions and people warning against the upcoming downturn are also Brunello Rosa and Nouriel Roubini who forecast recession in 2020. As Roubini predicted the Great Recession, it is worthwhile to examine carefully their article “The Makings of a 2020 Recession and Financial Crisis”, especially that the authors list 10 reasons justifying their prediction:

  1. By 2020, stimulus provided by accommodative fiscal policy will run out;
  2. The rising inflation (due to poorly timed stimulus) will force the Fed to overtighten its monetary policy;
  3. Trump’s trade wars will escalate;
  4. Other US policies (restricting the foreign investments and immigration) will add stagflationary pressure;
  5. Global growth, especially in China and emerging markets, will slow down;
  6. Europe, too, will experience slower growth, because of the monetary-policy tightening and trade frictions;
  7. US and global equity markets are frothy – so, there will be a correction in risky assets;
  8. When the correction occurs, the risk of illiquidity and fire sales will become more severe;
  9. Confronted with slower growth, Trump will attack the Fed more directly and will become even more hawkish in foreign policy, potentially triggering a military conflict;
  10. The space for fiscal or monetary stimulus is limited now, so the policymakers will not prevent the deep recession.
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