Buckle Up! Oil and Gold Flashing Recession Warning Signs
Oil and gold are marching in opposite directions. If history is any indication, that’s not good news for the US economy.
Oil prices fell sharply starting late last week and through the early part of this week. On Monday, West Texas Intermediate crude touched $53.25, the lowest level since February. Meanwhile, the price of gold surged, blasting through the $1,300 mark to reach prices not seen in more than a year.
Some of the same factors are driving gold’s climb and oil’s fall – heightened concern about a slowing global economy and fears about the impact of Trump tariffs.
A MarketWatch article called this combination of rising gold prices and falling oil prices “rare as to the extent of its divergence” and pointed out that in the past “has delivered to some nasty consequences for the broader market.”
This chart was created by Crescat Capital’s Tavi Costa.
In a tweet, Costa said:
Only three other times in history precious metals surged while oil plunged! All of them happened during severe bear markets and recessions. Buckle up, folks.”
Costa told MarketWatch that the setup is starting to look a lot like the beginning of the stock market selloff in the fourth quarter of last year.
Gold-to-oil ratio surging, copper prices getting annihilated, corporate spreads widening, and credit markets screaming recession ahead. The Fed’s utterly dovish comments just add to this list. Rate-cuts when late in the business cycle have never been a bullish sign. It reaffirms the many bearish macro signals we have been pointing out. Economic conditions are weakening in the face of asset bubbles everywhere.”
As you’ll recall, the Fed rescued the markets earlier this year – at least temporarily – with the “Powell Pause” in interest rates hikes. At the time, Peter Schiff said it wasn’t going to be enough in the long-run. Now it’s looking increasingly like the temporary high brought on when Powell and company ended the tightening cycle is wearing off. The Fed can’t pause again, so the next step will likely be a rate cut.
In fact, Powell made comments yesterday that the markets widely interpreted as dovish. The Fed chair dropped the word “patient” from his vocabulary, saying the central bank would respond as “as appropriate” to the perceived economic impacts of tariffs.
Oil and gold aren’t the only markets signaling trouble ahead for the economy. As we reported last week, bond prices spiked and yields fell over several weeks. Investors are beginning to see a recession on the horizon and they are pouring into Treasurys believing they will provide a safe haven. Peter said they are right about the looming recession, but they are making the wrong bet.
Costa echoed Peter’s sentiment that the market still hasn’t fully recognized the extent of the problem. Investors want to try to ride the bull just a little longer.
There is a speculative force typical of late-cycle markets that is willing to shrug off deteriorating economic data and a dashed trade deal with China. Too many want to drive that momentum train just a little bit longer. They are not deterred by arguments of excessive valuations.”
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