in January 2007 a year before the onset of the financial crisis gold began to Trend higher in fact by January of 2008 the month that marks the beginning of the recession gold prices had risen by 50% warning investors well ahead of time that an economic crisis was brewing rewind a few decades earlier to November of 1972 gold prices began to rise a year before the onset of the 1973 recession the down that came with a 50% decline in the stock market that has only been eclipsed by the 2008 financial crisis since gold is also melting
up today just like it was leading into two of the worst Financial crises in history the question is whether it's flashing the same signal as it was in those instances the main reason for why gold prices tend to rise is that investors believe a real economic growth is going to go down this is a chart that shows us long-term real economic growth in the United States going back to the 1960s when we add the price of gold on top of this chart we see that periods where gold has been rising or typically associated with moments
where economic growth is slown down meanwhile periods where gold is steadily moving lower are associated with periods of stable economic growth and when we flip the price of gold upside down we see there's almost a perfect inverse relationship between the price of gold and real long-term economic growth in the United States gold almost seems to have a perfect ability to sniff out when growth is going to slow down because investors flock to Gold when they believe that the US dollar is going to lose value they do that to protect themselves against what's called currency debasement
if an economic downturn occurs investors know that the response from governments and the Federal Reserve is going to be to cut interest rates and print money to stabilize the economy the result of this money printing is that the purchasing power of the US dollar declines and so if investors believe there's going to be a large slowdown that's going to result in a loss of the purchasing power of the US dollar while they buy gold in order to protect themselves and the larger the Slowdown the more gold they're going to buy that's why if we come
back to our chart of gold against Real economic growth in the United States we see that larger moves up in Gold are typically associated with larger declines in US economic grow and as we highlighted at the beginning of this video that's exactly what happened heading into the 2008 and 1974 recessions but we can see that heading into the 1989 and 2001 recessions gold prices were pretty stable so not really flashing a big warning sign regarding the growth outlook on the economy in need the 1989 and 2001 recessions ended up being some of the shallowest recessions
in recent Financial history with unemployment staying below 10% during these periods and GDP seeing only a slight contraction in these years of course it's important to keep in mind we have limited data available for this because there's only been so many recessions in the modern Financial system but there does seem to be a clear correlation between the strength of gold heading into an economic slowdown and the severity of that economic slowdown so the question is what kind of warning signal is gold flashing today over the course of the last 12 months gold has risen by
34% so yes gold is concerned about the economic Outlook but it's not yet as Extreme as the 50% moves up that we saw heading into the 2008 1974 and 1980 recessions today we're seeing about the same level of concern as the period heading into the 2020 recession now we're happy to say that we have been positioning our clients aggressively for this bull market in Precious Metals over the last year as we sent out multiple buy alerts for gold silver and gold miners during this period of consolidation on gold so is the 30% rise in Gold
that we've seen over the last year only signaling a mild economic slow down in the United States it could be too early to jump to conclusions after all gold only just broke out of a multi-year basing pattern and as a disclaimer we're still holding on to many of our bets on precious metals to this day because we believe that gold prices could still continue to rise before we look at how bad things could get in the United States let's first look abroad because China has become a major player in today's financial markets its GDP in
US dollar terms has quickly become comparable to the one of the United States but China is currently experiencing a major real estate crisis and real estate in China makes up about 70% of wealthy Chinese individuals portfolios so as confidence in the Chinese real estate market is waning we're seeing a larger portion of Chinese wealth going into gold and we see that clearly by looking at inflows into Chinese gold ETFs they've absolutely skyrocketed throughout 2024 okay so the Chinese crisis is contributing to Gold's recent strength but what about the US is the US economy vulnerable today
to an economic crisis similar in magnitude to 2008 when we look at the average person Savings in the United States we see that it's at the lowest level since the 2006 2007 period it doesn't seem like Americans are prospering today they're struggling to save money of course there are major differences between today and 2008 for example we don't have a housing bubble but a weak consumer is never a good sign for economic growth and Gold's rise could be a reflection of the weak state of the consumer making the economy more vulnerable to an external shock
