Published: 2019.10.07. US recession risk will support gold price

US recession risk will support gold price - Vista previa

US President Donald Trump very often reiterates in his speeches that things are going better in the US economy. However, statistics tell us the opposite. Therefore, it is highly likely that the Fed will continue to cut rates.

Over the past few months, some experts have argued that the US economy is becoming independent of the weakening global environment, even despite not a trade war with China. But the reality was different. Statistical data once again showed that the US economy is on its way to starting a recession.

For example, the index of purchasing managers in the US industrial sector, which is one of the important indicators of the state of the American economy, sharply decreased in September from 49.1 to 47.8 points, which is the lowest level since June 2009! The state of the index indicates a reduction in the country's manufacturing sector.

US Debt Crisis 2008-2009 showed that problems in the industrial sector usually turn into a services sector crisis within a few months. Investors are largely concerned about the upcoming prospect of repeating this scenario. It is safe to say that the US economy is on its way to a recession. This fact will be reflected in a decrease in interest rates on 10-year government bonds, which can repeat the record drop to 1.34% in July 2016.

The slowdown in the US economy is reflected in the labor market. For example, in the private sector in September only 135,000 new jobs were created, although the forecast was 145,000, and data for August were adjusted to decrease from 195,000 to 157,000 jobs. Statistics on the US labor market put pressure on the DAX and S & P500 indices, but in turn supported gold prices.

Therefore, it is already becoming apparent to many that the situation in the US economy and the labor market is not as good as Donald Trump often likes to repeat it. If the statistics on the labor market of October 4 are lower than forecasts, then the rates for 10-year bonds may fall again, as well as the DAX and S & P500 indices, which in turn will again attract investors to the gold market.

The risk of the US economy getting into a recession poses additional problems for the Fed and forces it to continue cutting rates. This is exactly what Trump demands from the Federal Reserve. The probability of rate cuts by 25 basis points on October 30 rose to 80%. This may be the third decline in a few months. Many analysts are confident that the Fed will be forced to continue the cycle of cutting rates. In this scenario, gold will become an increasingly attractive asset for investors.