Signs Point Toward Recession in 2023

Looking at our Key Market Table on your left, I get the sense that Powell has already now “thrown in the towel” on fighting inflation although the “strong” labor numbers reported today, may make it a bit more difficult for him to loosen up. Still there are strong signs that a recession awaits us in 2023 and may well be effective in taming inflation. Indeed, the strong rise in TLT this week suggests the market is losing its fear of inflation which then leads equity investors to join the party.

However, the chart on your left created by Crescat Capital shows three equity market tops. The first was in the dot-com craze. The second was in the housing market bubble. Both of those tops marked the beginning of a bull market for gold and gold shares.

We are now in the third market top since the Fed began to goose the stock market to keep the boys and girls in Congress happy. I believe smart investors are seeing the handwriting on the wall. They know we are heading into a recession in 2023 and that the always overly optimistic earnings projections of sell side analysts will fall far short of expectations, leading to a sharp market decline.

It is clear that the middle class is being decimated by rising commodity prices and wage inflation is also a self-defeating event for the middle classes. As the depression in the new home construction is joined by auto manufacturer layoffs, and as consumers find that their banks will no longer expand their credit card lines, discretionary spending will decline very sharply. Earnings across the boards are likely to decline. And this is all good news for gold as smart investors seek gold as a safe haven. To the extent inflation actually does decline, I would expect we will also see U.S. Treasuries along with gold continue to be a safe haven. And to the extent the cost of energy and other materials decline, that will boost the profits of gold mining companies as it always has in the past. Most people may not be aware that deflationary environments are the most profitable environments for gold miners because the price of gold relative to the cost of getting it out of the ground usually declines. The stronger showing we are starting to see in gold mining share prices are with producers and more advanced companies.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.