(Kitco News, Thurs. Aug. 3rd, 2023) – A U.S. recession is on the way, with big upside for gold and major downside risks for equities and Bitcoin, according to Gareth Soloway, Chief Market Strategist at InTheMoneyStocks.com and President of VerifiedInvesting.com.
Soloway joined Kitco News’ Lead Anchor and Editor-in-Chief Michelle Makori to explain the bleak reality behind the latest encouraging indicators, and why he believes the U.S. economy is still headed for recession.
He said the recent U.S. growth data are misleading because they hide significant declines in imports. “To get the GDP number, you subtract out imports,” he said. “U.S. imports have fallen to their lowest level in quite a long time, and so the lower imports go, the less it subtracts from GDP, and will artificially raise GDP. So it’s not to say that the economy is not expanding, but I think it’s a little bit on the false narrative side to say it’s expanding as rapidly as people are thinking.”
“If you look at what precedes recessions, a drop in imports is one of those indicators that tells you something is amiss.”
While Soloway conceded that some of that drop reflects the onshoring of production back to the United States, he doesn’t believe it explains the magnitude of the decline. “I don’t think that as many factories are up and running quite yet to really explain off all of it.”
Consumers and employment to collapse
He said that other ostensibly sunny economic indicators are also masking economic weakness. “Take a look at consumer confidence,” Soloway said. “Consumer confidence has been very, very strong recently. However, we can clearly see [in] the index of consumer sentiment by income, the top tercile of income tells us that consumer sentiment is very high, while the lower portions of income is still very, very low. And what this tells us is that consumer confidence is high mainly because likely the higher-income people have more exposure to the stock market. And the stock market has been on a torrential ripping higher.”
Soloway also sees dark clouds gathering over the U.S. employment landscape. “My fear is that we went through a period in COVID in 2020 where employers had so much trouble getting employees, that now that they have them, they’re very reluctant to let them go,” he said. “I think once we see the recession hit, which I would still expect late this year, early next year, I think that you’ll see a deluge of layoffs coming through, and we’ve already seen it in the tech sector. Then you also have to factor in the AI boom that’s coming.”
Soft landing off the table
“Listen, I love being an optimist,” Soloway said. “I think people in general should be optimists, but let’s be fair. The Federal Reserve has never engineered a soft landing in the history of themselves. What makes us think that this time, when things are even crazier out there, that this time is going to be that situation? There’s never been a soft landing. Not when you have this kind of scenario where the Fed has had to hike rates and try to land the economy. I mean, think about 2000. We still went into a recession, right? Think about 2007. You can go back to the 80s.”
He said that part of the problem is that the Federal Reserve is always following lagging data, while also feeling pressure to get in front of the problem. “In the recent periods, they talked about transitory inflation, and they basically were made the fool,” he said. “And so what do they do? They overcompensate, which is very normal for all of us humans to do. We always overcompensate when we’re wrong on this side, but ultimately they go too far on the other side and kick us into a recession.”
Gold still set for record highs in 2023
Soloway said that while gold is far from the top-performing asset this year, he’s sticking with his prediction for the precious metal to set new all-time-highs in 2023, and U.S. dollarweakness is a big reason why.
“If we look at the U. S. dollar, it broke down from a long term trend line of support,” he said. “This is a longer-term trend break on the dollar, and a weaker dollar is good for gold. I also think we’re getting closer to a recession by year-end, and the Fed may have to think about lowering rates, which is also positive for gold. I also think inflation still remains slightly elevated in that scenario as well, which is also good for gold.”
“I still think we take out the all-time highs on gold by year-end.”
Bitcoin could be dragged down by equities
Soloway is less optimistic about the short-term prospects for Bitcoin, even though he sees a bright future for the top crypto in the years ahead. “Bitcoin is in the clear for regulatory purposes, but what I’m fearful of, and this is what I think could drive it back down to $15,700 or even lower, is if you get a liquidity issue,” he said. “If you get an issue where the stock market does drop 20 or 30 percent, that’s where I would be very concerned about Bitcoin’s price holding up.”
He pointed out the fact that BTC has failed to break through the $30,000 level multiple times already. “I wouldn’t want to see it break $27,000,” he said. “If that gives way, it opens the door essentially for us to go back down.”
“If you got a bigger corrective move, if we went into a deeper recession, I do think that Bitcoin could potentially go even as low as my lowest worst-case scenario, $9,000 to $10,000, before bottoming.”
Soloway does see one asset with the potential for 50% upside in the next 12 months.
To find out which asset Soloway believes is “the next big trade” watch the video above.
Posted by:
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com