smallcase, a leading platform for curated investment strategies, expects the US economy may slip into a recession due to the rising debt and market imbalances.
Stocks, Bitcoin, leveraged investments and meme stocks (largely driven by activity on social media) are all surging higher, which is certainly reminiscent of the “madness” witnessed following the Covid lockdowns, said a smallcase study.
In this background, gold and silver has emerged as a safe haven amid looming recession in the US.
Multiple economic indicators raise alarms about the probability of a looming US recession. From rising credit card delinquencies to elevated S&P 500 P/E ratios, the findings reveal the challenges ahead. The S&P 500 trades at a P/E ratio of 31.2 times, a historically high level associated with past market corrections.
Additionally, credit card delinquencies have surpassed 4 per cent for the first time since 2010, reflecting rising financial stress and potential strain on consumer spending. These indicators, among others, suggest heightened economic vulnerabilities.
The study also highlights the US debt-to-GDP ratio climbing to a record 124 per cent, with over $1 trillion spent on public debt interest in 2023. This growing debt burden has significant implications for economic growth and fiscal sustainability, it said.
Gold and silver have consistently served as reliable hedges during periods of economic uncertainty. Historical data underscores their performance in past recessions, with gold showing gains of up to 100 per cent and silver exhibiting increases as high as 300 per cent during stagflationary periods.
Central banks remain active in the gold market, with notable purchases recorded in 2024. The RBI added 37 tonne of gold, while the People’s Bank of China acquired 27 tonne, and the National Bank of Poland emerged as a leading buyer in the third quarter. Silver’s dual industrial and investment roles continue to drive its demand, bolstered by advancements in green technologies and 5G deployment, said smallcase.
Ujjwal Kumar, smallcase Manager, Founder and Chief Investment Officer Wealth Culture said while it is difficult to say when exactly the US can enter a recession, data seems to suggest that things are not looking as great.
Investors should take a very balanced approach to their portfolio and focus on value rather than chasing momentum. If and when there is more clarity on a potential recession in the US, both gold and silver are expected to do well, he added.
