Gold will lead a stock market recovery once the next recession ends – Chen Lin

NEW YORK (June 27)  The U.S. economy could already be in a recession, said Chen Lin, Founder of Lin Asset Management, and the second quarter Gross Domestic Product (GDP) release would be most important indicator.

“We are possibly in a recession already… and we’re potentially getting a really deep recession next year,” he said.

Speaking with David Lin, Anchor and Producer at Kitco News, at the PDAC 2022 Convention in Toronto, Lin said that the gold price has historically lead economic recoveries and stock market rebounds, and this time should be no different.

“When are we coming out of [the recession]? I think, one day, the Fed will finally blink. They’ll say, ‘we cannot tighten like this anymore.’ That’s when gold will rally really hard… And that’s when we’ll start coming out of recession,” he said.

The Fed, Inflation, and Markets

Lin said that the Federal Reserve lacks the ability to raise interest rates to a level that would sufficiently tackle inflation. He referred to Paul Volcker, the WASHINGTON (June 27)  Fed Chairman from 1979 to 1987, who raised the federal funds rate to 20 percent in 1981, in order to tackle double-digit inflation.

“People are talking about Paul Volcker… but that was then, this is now,” he said. “The United States has $30 trillion in debt. If interest rates go up, even if it goes up to 4 percent, think about how many trillions we’ll pay each year for the interest rate… There will be uproar over that. So, I don’t think the United States would do that, or that the interest rate can go to the significant high [levels] necessary to crush inflation.”

He added that the Fed might feel obliged to engage in more quantitative easing.

Gold in a Recession

Although gold does not perform well during a recession, it can be a leading indicator that a recession is coming to an end.

“In every recession, in every downturn of the stock market, gold is always the first to come out of it,” he explained. “Even for investors not interested in gold, watching the gold price can give you a direction of where the market is going to be in the next few weeks or few months… first gold goes up, and then the economy recovers.”

KITCO