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Gold Is Not a Recession Hedge.

Written by Gary North on April 16, 2013

I have believed for months that the U.S. economy is at the edge of a recession. Europe is in recession. Japan probably is. To expect the U.S. to avoid world recession is to expect a miracle.

The precious metals are not recession hedges. Commodities in general are not. Commodities fell along with gold and silver.

On February 13, I wrote this for my GaryNorth.com subscribers.

I think the USA is moving into a recession, which is why I have not believed that gold’s price will go over $1800 in this phase of the business cycle. But there is also increasing demand by central banks to buy gold. This is especially true of Asian banks. I do not think that the quantity of gold purchased by the central banks is going to offset by much the total amount of gold which is brought into the economy every year, which is about 2000 tonnes.

The United States may be able to dodge the recession bullet. The incredible expansion of Federal Reserve purchases of long-term government bonds and Fannie/Freddie bonds is indicative that the Federal Reserve is doing its best to avoid recession. Europe is in a recession, and so is Japan. But the United States, if the Federal Reserve continues to inflate at this rate, may be able to keep from falling into recession, although I do not think there is anything like a sustained economic recovery in the works.

Gold’s decline indicates a declining fear of imminent price inflation. Europe’s economy has avoided a major crisis, again. This reduces demand for gold as a crisis hedge.

The threat of a European central banking dump of gold reserves, triggered this decline. I think there will be no such sales. If there are, other central banks will buy this gold.

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16 thoughts on “Gold Is Not a Recession Hedge.

  1. Nothing has changed…..the fundementals are the same….the world as a whole is in way too much debt living beyond it's means for a long time….no country or civilization has ever gotten rich by printing money…that's why gold will continue to rise in value over the longer term….it is being manipulated by Wall St at the moment. If you have the intestinal fortitude you will be rewarded.

  2. Gary North is almost always wrong. Finally dumped him after advice on Y2K investments cost me many multiple thousands. He misses opportunities and advises moves that go into the tank.

    If gold is no longer likely to rise over time, I would assume that the US has finally put it's affairs in order and has removed
    a government whose policies were heading us for the brink. I guess he gets his information from a different source than the rest of us, because I can't see any evidence of that having happened.

  3. The decline appears to be a paper phenomenon. Try buying physical metal. Premiums are up and delivery times are getting longer.

  4. ….. you're kidding, right Gary? Please tell me you're joking.

    We just got OUT of a recession. Or have you been too busy hiding in your bunker since 2008 to notice?


  5. Michael4yah says:

    You cant buy at the top of the curve and expect it to be a hedge against recession. If you bought in 2004 at 250.00 per ounce it would be. Even in 2008 it would be 1/2 the price it is today.

  6. twogreycats says:

    I bought some AG in February from a dealer I've been doing business with since the late 1980's—–I got delivery April 9th so you connect the dots—–"Gold and silver are money, the only money, everything else is credit" J.P. Morgan 1907—-

  7. allosaur says:

    When everything collapses, precious metals and jewels won't mean squat. It will be all about who has the food, water, gasoline, guns and ammo. .

  8. I don't know about Gary, but f YOU think we have come out of a recession, you are even more economically ignorant than you think he is.

  9. Gold and silver will mean squat. Silver bullets will cease be a figure of speach. Anyone wishing to invest in precious metals should consider lead.

  10. Correct

  11. OregonMuse says:

    …but mainly liquor and ammo.

  12. Someone please tell me why China, India and Russia are buying up metric tons of Gold?

  13. Rabelrouser says:

    I can think of several other items that would be quite valuable also: toilet paper, feminine hygene supplies, first aid supplies. But those commodities will not be more valuable than food, and water, and as far as ammo, you have to protect what you have.

  14. Rabelrouser says:

    Mark, quite simply, so they can define the Golden Rule: He who owns the Gold, Rules!

  15. *

    Progressives have taught USA (the lie) that only Republicans own businesses, even 401Ks. Therefore, the excess labor pool, including legal emigrants and (intentionally) 30 million illegal aliens, was created to suppress (through market forces) business wage inflation. The inevitable result is “unemployment”.

    The expense of the necessary “safety-net” (beyond the unemployable) is funded historically with (taxes not sufficient to pay the bill) over spending; deficits because market capital depletion through more taxes becomes counter-productive. As the economy contracts through reduced (siphoned of as taxes) private investment, tax revenue also declines.

    Paradox: Inflation control by employee wage suppression (excess labor pool) creates consumer purchase price inflation through fiat currency devaluation.

    Contradictory instructions from Congress defeated the Federal Reserve (Creature from Jekyl Island) administering the paradox; low unemployment AND low inflation simultaneously. The current money printing (QEx) campaign, from Treasury to Fed., has inevitably lead to domestic (gas & food price increase) monetary inflation, or future currency repurchase will cause GDP contraction and increase unemployment.

    People must purge their minds (my epiphany at University 1973) of the propaganda that economics is a science. After engineers completed the math (actually The Calculus) to determine the trajectory to land (success predicted and repeatable) a space craft on Mars, no scientist argued about it years later.

    Due to constant transition (individuals moving from old job to the next) in the labor force, five percent (5%) unemployment is considered “full” employment; fair enough. However, illegal aliens (term used in Fed. law documents) and tens-of-millions of citizens, both groups in safety-net, who stopped looking (fewer private sector positions now than 2008) are NOT mentioned in the lame-stream media.

    The potential catastrophic system failure, caused by Washington DC based government programs, were enacted to enhance elites’ power. Incompetent elected Republican (worst there 10+ years) and Democrat Party members perpetuate fraud and betrayal on the USA citizen. The least job marketable citizen is the most exploited by the sociopathic elite system. We can argue the “gold standard” another day.

  16. Absolutely. You'll need how to access clean (enough) water and food in a hurry while protecting yourself from those who can't access enough food and water. Besides if you don't the basics you'll risk paying a gold coin per bottle of water to someone who did stock up ahead of time making him very rich (assuming he has plenty to spare).