gold market - investment & analysis


Economists Predict a Recession in 2020. Should Gold Investors Take It Seriously?

July 5, 2019, 5:09 AM Arkadiusz Sieroń , PhD

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Do you think that recessions are rare? Not at all! Actually, economies find themselves in a state of recession for 10-12 percent of the total time. What is rare, is a recession that is correctly predicted. Paul Samuelson, a Nobel Prize winner in economics, joked once that the stock market has predicted nine of the last five recessions. However, the economists are not much better. Unlike the stock market, they are more likely to miss recessions than to predict ones that never occur - the inability to see the arrival of the Great Recession is the best example of poor forecasting ability among the pundits. Indeed, as Zidong An, Joao Tovar Jalles, and Prakash Loungani found in a recent working paper How Well Do Economists Forecast Recessions?, in April of the year before recession, forecasters predicted only five of 153 recessions in 63 countries from 1992 to 2014.

The current consensus is that there will be a recession by the end of 2020. According to the National Association of Business Economics's latest survey of 53 professional economic forecasters, 60 percent of participants expect a recession by the end the next year. Similarly, 48.8 percent of economists in the June 2019 Wall Street Journal Economic Forecast Survey expect the next recession in 2020. That's up from just over a third in the May survey.

The financial officers think alike. In the latest Duke CFO Global Business Outlook Survey, 69 percent of American CFOs predicts the U.S. economy would be in a recession by the end of 2020 (the crowds are less pessimistic, but they assign a 37 percent probability of the recession by the end of Trump's presidency, according to the PredictIt).

But can we trust these forecasts, given the analysts' poor track record? This is what we investigate in the current edition of the Gold Market Overview. We analyze the strength of the present expansion, which has already become the longest economic boom in the US post-WWII history, wondering whether the recession is coming. However, we do not take the pundits' gibberish at face value, but focus on the reliable, research-based recessionary indicators. Some of them are relatively new and not widely known, but they are certainly (or even all the more thanks to the lack of media' attention) valuable for the precious metals investors. A successful forecast of recession could easily boost the gains from the gold's portfolio.

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