GBP/USD dives to a fresh 37-year low on Thursday amid the post-FOMC USD rally. Expectations for more aggressive Fed rate hikes, the risk-off mood underpins the buck. Oversold conditions on short-term charts offer some support ahead of the BoE meeting. The GBP/USD pair falls to a fresh 37-year low during the Asian session on Thursday as the post-FOMC US dollar breakout momentum remains uninterrupted. The Federal Reserve raised interest rates by another 75 bps on Wednesday and struck a more hawkish tone, signalling more large rate increases at its upcoming policy meetings. The Fed's so-called dot plot revealed that policymakers expect the benchmark lending rate to top 4% by 2022. Central bank officials anticipate further hikes in 2023 and rate cuts beginning only in 2024. The Fed expects inflation to stay above the 2% target for at least the next two years. In the post-meeting press conference, Fed Chair Jerome Powell reiterated that the central bank would act aggressively to bring inflation down. Powell added that the historical record high inflation cautions strongly against prematurely loosening policy, suggesting that the Fed will not pivot as soon as the economy starts to slow. This, in turn, pushed the yield on the benchmark 10-year US government bond to an 11-year high. Apart from this, the prevalent risk-off mood remains supportive of the ongoing USD rally to a 20-year high. The market sentiment remained fragile amid growing recession fears and was further hit by geopolitical risks. In the latest development, Russian President Vladimir Putin announced an immediate partial military mobilization and threatened to use all the means to defend Russia and its people. This marks a further escalation in the protracted Russia-Ukraine war and tempers investors' appetite for riskier assets, evident from a sea of red across the equity markets. However, the GBP/USD pair manages to find some support ahead of the 1.1200 mark as the focus now shifts to the Bank of England policy meeting on Thursday. The UK central bank is expected to step up its efforts to curb inflation and deliver a jumbo rate hike at the end of the September meeting. The markets are pricing roughly a 75% chance of a 75 bps increase. This, along with UK Prime Minister Liz Truss’s energy relief plan could help soften the economic downturn and lend some support to the British pound. The immediate market reaction, however, is more likely to remain limited amid looming recession risk, suggesting the path of least resistance for the GBP/USD pair. Hence, any attempted recovery might still be seen as a selling opportunity and risk fizzling out rather quickly. Technical Outlook From a technical perspective, the overnight decline confirms a fresh bearish breakdown through the lower end of a downward sloping channel from May 2022. That said, RSI (14) on the daily chart is already flashing overbought conditions and warrants some caution. Hence, it will be prudent to wait for some near-term consolidation or a modest recovery before considering any further depreciating move. Any attempted bounce might now confront stiff resistance near the said channel support breakpoint, currently around the 1.1300 mark. The latter should act as a pivotal point for short-term traders, which if cleared decisively might trigger a short-covering rally. The GBP/USD pair could accelerate the momentum towards the 1.1375-1.1380 region, though any subsequent move up is likely to remain capped near the 1.1400 mark. On the flip side, the Asian session low, around the 1.1220 region, now seems to protect the immediate downside ahead of the 1.1200 round figure. Some follow-through selling will reaffirm the near-term negative outlook and make the GBP/USD pair vulnerable to prolonging the downward trajectory. 

With the rate differential widening, there is little room for USD/JPY slides. The Bank of Japan is widely anticipated to maintain its monetary policy unchanged. USD/JPY is in a consolidative phase near a two-decade high of 144.98. Following the US Federal Reserve’s policy announcement, it will be the turn of the Bank of Japan to decide on its monetary policy. Against the tide, the BOJ is widely anticipated to maintain the status quo, leaving rates at record lows of -0.1% and the yield curve control policy on hold. The latter means the central bank will continue unlimited bond purchases to keep the yield on the 10-year government bond around 0%. Finally, the central bank is expected to confirm the end of its special coronavirus financing program in September, as previously announced. The Japanese central bank´s strategy to maintain inflation at 2% stopped working five months ago. According to official figures, the annual inflation rate rose by 3% in August from 2.6% in the previous month. The Consumer Price Index rose for twelve consecutive months, and while it remains far below that of its major counterparts, the global pressure points to a further upside. As Japan is a net energy importer, the Russian conflict is also causing an increased trade deficit in the country. As a result of this situation, the Japanese yen plunged to a two-decade low against its American rival. However, there are null chances the BOJ will suddenly change course and decide on quantitative tightening. Formal intervention in the making? There is, however, one caveat. Bank of Japan Governor Haruhiko Kuroda has reportedly conducted a foreign exchange check, which somehow opens the door for formal intervention. The central bank meeting could be the perfect time to announce a measure in that direction The imbalance with all other central banks is likely to keep USD/JPY on its way up, although an unexpected tightening could result in the pair plummeting hundreds of pips. Nevertheless, and as long as the rate differential keeps widening, the pair will likely continue to reach record highs. USD/JPY possible reactions The USD/JPY pair has been consolidating gains after reaching 144.98 on September 7, without technical signs of long-term bullish exhaustion. Should policymakers hint at some form of tightening, there’s still little room for the JPY to add. Market players would need action to react to the event rather than promises. The base of the latest range is the 141.50 price zone, a potential bearish target should Japanese policymakers drop the yield curve control or unexpectedly hike rates. A break below the level could trigger large stops and result in USD/JPY nearing the 140.00 figure. Formal intervention could also take its toll on USD/JPY, although the potential slump will depend on the measures announced. The impact of the latter could be short-lived. On the other hand, an on-hold decision could take the pair beyond the aforementioned two-decade high.

EUR/USD came under renewed selling pressure on Tuesday amid resurgent USD demand. Bets for aggressive Fed rate hikes trigger a sharp spike in the US bond yields and the USD. Bearish traders turn cautious and await the crucial FOMC policy decision on Wednesday. The EUR/USD pair witnessed an intraday turnaround on Tuesday and retreated nearly 100 pips from a one-week high, reversing its modest gains recorded over the past four sessions. The US dollar caught aggressive bids as investors geared up for another supersized interest rate hike from the Fed and turned out to be a key factor exerting downward pressure on the major. The current market pricing suggests over 80% chances of a 75 bps increase and a small probability of a full 100 bps tightening. This, in turn, pushed the US bond yields higher across the curve and provided a goodish lift to the greenback. The two-year US government bond yield, which is highly correlated to rate expectations,  jumped to its highest level since October 2007. Furthermore, the benchmark 10-year US Treasury note reached a level not seen since April 2011. This, along with the risk-off impulse, acted as a tailwind for the safe-haven buck. The market sentiment remains fragile amid concerns that rapidly rising borrowing costs will lead to a deeper global economic downturn. The headwinds stemming from China's zero-COVID policy and the protracted Russia-Ukraine war have fueled recession fears. On the economic data front, the German Producer Price Index (PPI) climbed 7.9% in August and the yearly rate rose to 45.8% from 37.2% in the previous month. In the US, Building Permits fell by 10% in August, while Housing Starts were up by 12.2% during the reported month. The market reaction, however, was muted as the focus remained on the critical central bank event risk. Even comments by the European Central Bank President Christine Lagarde, saying that the appropriate pace of future rate increases will be decided on a meeting-by-meeting basis, failed to provide any impetus to the EUR/USD pair. Nevertheless, spot prices settled near the lower end of the daily trading range and remained on the defensive through the Asian session on Wednesday amid some follow-through USD uptick. Market participants now seem to have moved to the sidelines and await the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session. Moreover, updated economic projections, the so-called dot plot and Fed Chair Jerome Powell's remarks at the post-meeting press conference will be examined for clues about the future rate-hiking path. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the EUR/USD pair. Technical Outlook From a technical perspective, repeated failures to find acceptance above the parity mark suggest that the bearish pressure might still be far from being over. Some follow-through selling below the 0.9950-0.9945 region will reaffirm the negative bias and make the EUR/USD pair vulnerable. The subsequent downfall could then drag spot prices to the 0.9900 round-figure mark en route to the 0.9865 region, or the lowest level since 2002 touched earlier this month. On the flip side, the 1.0000 psychological mark now seems to act as an immediate strong barrier ahead of the 1.0030-1.0050 supply zone. Sustained strength beyond the latter might trigger a short-covering rally and lift the EUR/USD pair to the 50-day SMA resistance, just ahead of the 1.0100 round figure. Some follow-through buying will suggest that spot prices have formed a near-term bottom and pave the way for a move towards the 1.0145-1.0150 intermediate barrier. Bulls might then aim to conquer the 1.0200 mark.

Dollar index and Euro may trade within 109-110.30 and 0.9940-1.006 respectively while EURJPY can trade below 145 to head towards 143. USDJPY is holding below 143.80 and can fall towards 142. USDCNY and USDRUB can remain in a range of 7.00-7.0250 and 62-59.20 respectively. Pound and Aussie can be bullish while above crucial supports of 1.14/1.1350 and 0.67-0.6670 respectively. USDINR can fall to 79.55/40 while below 79.80 today. EURINR can rise towards 81.50 The US Treasury yields are moving up ahead of the US Federal Reserve meeting outcome tomorrow. Key resistances are ahead, and the Fed meeting outcome would decide whether the yields can break above them or not. The German yields have risen across tenors and have come closer to their crucial resistances. The price action in the coming sessions will need a close watch to see if a reversal is happening or not. The 10Yr and 5Yr GoI sustain higher and are likely to move up from here. Supports can limit the downside for them. Dow and DAX have rebounded from 30500 and 12600 levels respectively. Nikkei and Shanghai have bounced back from the support at 27500 and 3100 respectively. Nifty has risen well above the support at 17400 and while above it the index can move up further on the upside. Brent and WTI may remain in a range of 87.5-95 and 80-90 respectively for some time. Gold looks vulnerable while below the resistance at 1700-1725. Silver could remain in a range while below the resistance at 20. Copper needs a strong rise past 3.6-3.65 to negate a possible fall on the downside. Visit KSHITIJ official site to download the full analysis

This week, central banks are in focus. Both the Federal Reserve and the Bank of England are expected to raise interest rates when they meet on Wednesday and Thursday, by 75 basis points and 50 basis points, respectively. Financial markets are rattled to say the least, Wall Street recorded the biggest weekly drop in months, the S&P 500 fell 4.8%, while the Nasdaq dropped more than 5%. The plethora of central banks announcing their rate decisions, the Bank of Japan will also join the chorus, could inject further volatility into financial markets.  Symbolic Fedex sends shiver down traders’ spines  Looking at last week’s stock market performance in more detail, the driver of the decline for US and global stocks was firstly, stronger than expected US headline CPI and secondly, a warning from Fedex, the shipping company, that it would close offices, freeze hiring and park aircraft due to a sharp drop in package shipping volumes, which saw the stock lose more than a fifth of its value. The company reported weaker than expected Q2 results and withdrew its full year guidance, after warning of a deteriorating macroeconomic backdrop. Fedex is symbolic of the wider economy, when transport companies start to perform badly it is usually a warning sign for other sectors. This is particularly concerning when we are reaching the end of Q3, with expectations for earnings season rapidly being revised down. In the first half of the year, companies did a stellar job of passing costs onto their consumers. However, with inflation remaining sticky, this dynamic cannot last forever, so underlying conditions for equities across the west have deteriorated. Therefore, stocks sold off so sharply last week. What they do next week is very contingent on the outcome of the central bank meetings, especially the Fed meeting.  Looking ahead to the Fed  There is currently an 82% probability of a 75 bp rate hike from the Federal Reserve this week, with a small chance of a 100 bp rate hike. Not that long ago, some corners of the financial markets were looking for the Fed to pivot away from larger rate hikes, and slow down to 50bp rate hikes from here. However, after last week’s CPI report, there is now no chance of a 50bp rate hike this week, according to trading on the Fed Funds Futures market. We do not think that the Fed will hike by 100bp on Wednesday, for a few reasons: 1, they don’t like to surprise the market, 2, there are clear signs of an economic slowdown and 3, while some areas of inflation are proving to be sticky, inflation expectations in the US have turned lower. The 5-year 5-year forward inflation rate, has fallen to 2.24%, which is within hitting distance of the Fed’s 2% target rate. Thus, we believe that the Fed will deliver some “good” news on Wednesday: it won’t hike rates by 100bps.  The good news from the Fed will be fleeting  Unless the Fed wants to lose all credibility, then the good news at this meeting will be fleeting. Instead, the Fed will need to impress on the market that it means business when it comes to fighting inflation. With the inflation rate proving to be stickier than expected, especially core inflation, then it will need to elongate its rate hiking cycle. By the end of 2023, the Fed Funds futures markets expects interest rates in the US to have risen to 4%-4.25%, which is 1% higher than what was expected a month ago. Thus, the prospect of a Fed pivot is now a 2024 event, not a 2023 event. In trading terms, this means that in the short to medium term, unsurprisingly, we continue to like the dollar. After GBP/USD’s rout last week, which saw it fall to $1.1430, momentum remains to the downside. The sharp decline in cable could slow this week, but ultimately if the UK goes on a massive spending binge at this week’s mini budget on Friday, then the path for the pound is lower.  Will the euro fall?  EUR/USD’s path has been much smoother than the pound’s in recent weeks, and it continues to trade sideways after breaking above the $1.0260 level. However, we believe that the euro’s time will come. Parity will still loom, it could be triggered by this weekend’s Italian elections, that threaten to disrupt the status quo in the Eurozone. Added to this, the technical picture for the dollar looks attractive if the dollar index remains above its 50-day moving average around 108.0. The dollar is also likely to be supported this week by Monday’s trading action in US government debt, which saw Treasury yields jump to their highest levels in a decade. The 10-year yield jumped to 3.5% for the first time since 2011, while the 2-year yield...

Key highlights EUR/USD is attempting a recovery wave above 1.0000. A major bullish trend line is forming with support at 0.9995 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair extended losses below the 1.0020 support, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). It traded as low as 0.9945 before the bulls took a stand. It is now consolidating losses above the 0.9980 level. On the upside, the pair is facing a strong resistance near the 1.0060 zone and the 200 simple moving average (green, 4-hours). The 50% Fib retracement level of the key decline from the 1.0197 swing high to 0.9945 low is also near the 1.0070 level to act as a resistance. A clear move above the 1.0060 and 1.0070 levels could open the doors for a larger increase. In the stated case, the pair might rise towards the 1.0120 and 1.0130 levels. On the downside, an initial support is near the 0.9995 level. There is also a major bullish trend line forming with support at 0.9995 on the same chart. A downside break below the trend line support might spark a sharp decline towards the 0.9950 support.

As rate hike fears drove heavy selling on Wall Street this week, precious metals investors are finding some silver lining amid the storm clouds. Worse than expected inflation data has put a 75 basis-point rate increase firmly back on the table. Futures markets are now pricing in the possibility that the Federal Reserve will move by a full percentage point, though a three-quarters of a percent move is currently viewed as more likely. Earlier in the month, investors had hoped that weakening economic data would cause central bankers to pivot away from their historically large interest rate hikes. But Tuesday’s Consumer Price Index report showed inflation is still raging. The CPI came in at an annualized rate of 8.3%.  Despite a drop in gas prices and weakness in most industrial commodities, retail costs for consumers continue to climb. Especially worrisome is persistently rising food costs.  Food prices have surged 11.4% over the past year, marking the biggest annual increase since 1979. A sub-index that measures price changes at the grocery store jumped by a whopping 13.5%. Meanwhile, according to the Bureau of Labor Statistics, the average American worker is seeing only a 5.2% annualized bump in earnings. The purchasing power of wages, savings, and investments is getting clobbered at a staggering rate.  Unfortunately, none of the major asset classes have provided investors with a safe haven from the corrosive forces of inflation. Stocks, bonds, and yes, even precious metals are being dragged down.  Volatility is inevitable in metals markets. Riding out downswings is the price investors must pay to enjoy the upswings that follow.  What investors must never risk is losing their actual, physical stake. Secure storage of your bullion is as important as the decision to obtain it in the first place. Money Metals Depository offers maximum security for physical precious metals owners. All bullion holdings are fully segregated and never commingled or rehypothecated.  And they are fully insured by Lloyd's of London. The most convenient and cost-effective way to buy and store precious metals is to purchase them from Money Metals Exchange and have them delivered directly to the Depository.  Of course, all the products we sell are guaranteed for weight, purity, and authenticity. Money Metals now ships about 40,000 gold and silver orders across America each month, with thousands of other investors choosing to securely store their precious metals in individually segregated accounts at Money Metals Depository. Due to our steadily growing customer base on the way to becoming an industry leader, we have outgrown our existing facility.   This week, Money Metals Exchange announced it is breaking ground on a new 40,000 square foot vaulting and fulfillment facility in Idaho. The $21 million facility will be the largest private depository of its kind in the Western United States.  The convenience and security of storage, including the seamless process Money Metals customers experience when buying and selling metal, has been the main catalyst for the new, dramatically larger facility. With completion scheduled for late 2023, the ultra-secure, state-of-the-art facility will be erected on a 3.2-acre lot adjacent to emergency services near the heart of Eagle, Idaho. The demand for secure storage of physical gold and silver from our very large, nationwide customer base has increasingly filled up our depository vaults.  We frankly don't anticipate a reversal in the destructive trend in the U.S. (and the world at large) toward bigger government along with more debt, attacks on Americans' freedoms and privacy, currency debasement, stock market volatility, and geopolitical political conflict.   We expect more and more Americans to wake up and take prudent steps to protect themselves and their families -- and that includes diversifying into gold and silver. Only about 1% of Americans today own gold and silver bullion as an investment or financial hedge, a number that's poised to rise dramatically in the coming years. That’s why Money Metals is confident in making this major long-term investment. Precious metals holders also tend to be long-term oriented and aren’t going to let go of their core holdings to chase some new investment fad.  Gold and silver markets may test investors patience and even trigger their nerves at times. But like no other form of money, precious metals have stood the test of time.

USD/JPY hovers under 24-year high The Japanese yen steadies as the government signals a market intervention. A rapid rise in interest rates across the globe has cut investors’ appetite for Japanese assets. Japanese officials have expressed their concerns over the currency's steep decline lately. The Finance Minister remarked that options are open to stop the yen’s bleeding as imported inflation may dampen consumer and business sentiment. A recent rate check with dealers by the BoJ shows that policymakers are closely watching the market, fueling speculations of a potential intervention. The pair is closing in on the 24-year high at 147.50. 138.00 is a fresh support. GBP/USD slides on stagflation worries The pound weakens over the rising cost of debt. Markets are expecting the Bank of England to raise its interest rate by at least 50bps. The latest data showed consumer prices slowed down for the first time in a year. This may lead the central bank to double down on tightening to stifle inflation. However, even if the BoE joins the 75 basis point club, the currency may find little relief as the fear of stagflation gains ground. Debt burdens from the UK government’s energy support package could weigh on investors’ demand for Sterling-denominated assets. The pair has been capped by 1.1700 and is heading towards 1.1100. XAU/USD struggles over robust US dollar Gold loses its shine as it feels the weight of a firm US dollar. Following hotter-than-expected US inflation traders may reckon that the Federal Reserve would carry on with its shock therapy to bring prices under control. Talks of a 100-basis-point have made their way back among market participants, sending the dollar index back to its two-decade peak. Amid a fast-paced rise in Treasury yields, the appeal of the non-yielding metal would continue to diminish. A hawkish FOMC this week would confirm the recent rally as a dead cat bounce. Bullion has entered bearish territory below 1680. 1580 is next with 1730 as the first resistance. US 500 slips over economic headwinds The S&P 500 reverses its course as investors brace for a super-sized US rate hike. The market must have realised that recent inflation and retail data gave the Fed no reason to hit the brakes on the tightening. There is little good news to soothe the jittery mood either. Warnings about a global slowdown from both the World Bank and the International Monetary Fund may continue to push investors away from risk assets. Meanwhile, contraction in China’s property sector, which accounts for a quarter of the country's GDP, fans fears of a protracted downturn. The index is drifting to June’s low at 3650 and 4120 is a fresh resistance.

Gold is breaking below 1700 this week, as US yields rise on hawkish FED expectations that will have to be very aggressive to bring down the inflation. We know that USD is on the rise and as long that’s the case, gold may not find the buyers that easily. However, I assume that COT data will now shows us even more heavy shorts by large speculators after recent breakdown, but data may show similar extreme numbers like back in 2013/2014, late 2016 and 2018.   So the question can gold stabilize? We will have to wait and see, but with Elliott waves approach we will try to determine if gold is about to turn, or will it continue lower. If you are interested, make sure to track wave counts with us. Have a nice weekend.  Get Full Access To Our Premium Analysis For 14 Days. Click here!

Europe Having seen a weak lead from Asia markets, European markets have seen another negative session, dragged lower by further weakness in the US, whose losses have been driven by the surprise decision by FedEx to bring forward their Q1 earnings numbers from next week. The company cited a warning over a significant business slowdown, missing on revenues and profits and pulling their guidance for the whole year, prompting investors to take fright that this could be the proverbial “canary in the coalmine” for a raft of downgrades, when US earnings gets underway at the beginning of October. These increasing concerns over a global recession, as well as rising US yields are prompting a flight into the US dollar and not much else, with the DAX set to post its lowest weekly close since November 2020. The FTSE100 has also come under pressure, although the rise in yields this week has helped the likes of Lloyds Banking Group and NatWest Group outperform, although that’s not been enough to stop the UK benchmark from closing at a one week low. Risk sentiment here wasn’t helped by UK retail sales falling off a cliff in August, declining by -1.6% sending the pound to its lowest levels against the US dollar since 1985. Retailers have also slipped back as a result of those retail sales numbers, with the likes of B&M European Retail, Frasers Group, JD Sports and other consumer discretionary taking a hit. The FedEx effect has clobbered the price of Royal Mail, sending the shares to their lowest levels in two years, and opening the trapdoor in a sector that is bellwether for the wider global economy. It’s doubly bad news for Royal Mail given its own inefficient working practices, as well as the threat of further strikes, the last thing the sector needed was a profits warning from one of the sector leaders when it comes to logistics. With Royal Mail already losing £1m a day the road back is likely to be a long and arduous one. On a more positive note, AstraZeneca shares are performing well after getting approval from the EU for its Evusheld drug for treating Covid-19, while Nirsevimab has been recommended for approval and is used for the treatment of respiratory tract infection in babies and young infants. US US markets have opened sharply lower, and on course for their worst week since June, with the narrative now shifting to what could be coming down the pipe with respect to earnings downgrades, after yesterday’s unexpected decision by FedEx to bring forward the publication of its latest quarterly numbers from next week and issuing a profits warning. Companies like FedEx, which have huge logistics operations are generally considered a decent bellwether of the global and domestic economy, as the flow of goods and services acts as a good measure of global supply and demand. Having only raised its full year profits guidance in June insisting that it could manage the increase in operating costs by raising prices, yesterday’s decision to pull it, along with big misses on revenue and profits has seen the shares plunge, with the company blaming a slowdown across all of its businesses. Q1 revenues came in at $23.2bn, below expectations, with the company saying it expects Q2 revenues to come in 4% lower at $23.75bn. Profits for Q1 also came in below expectations of $5.14c a share, at $3.44c. Yesterday’s downgrade has in turn prompted a number of analyst downgrades, with falls in the likes of UPS and Amazon as well. Uber shares are lower after a hacker claimed to have penetrated a number of the company’s key databases. FX With the UK currently in a period of mourning, the pound’s performance this week appears to be matching the national mood, sliding to a fresh 37 year low against the US dollar, and an 18-month low against the euro. This morning’s sharp decline in August retail sales of -1.6% speaks to an economy that is probably already in recession, having already seen a -0.1% GDP contraction in Q2, and likely to see a similarly weak performance across Q3. While the pound has had a disappointing week it hasn’t come close to being the worst performer, that honour goes to the Norwegian Krone, with the falls in oil and gas prices weighing on that. Commodities Oil prices are seeing a modest rebound as we close out the week, however they have struggled to rally meaningfully against a backdrop of a weakening demand outlook. More interestingly Brent crude prices having slipped below the 200-week SMA are showing little sign of moving back above it, suggesting the potential for further declines. The rise in US yields and global yields more broadly is continuing to exert more downward pressure on gold prices which hit 2-year lows...

In today's live stream, David said he was taught, "The white stuff leads." Although there have been false starts he believes the physical market and backwardation make this different.

We are so far only in a technical recession, but the true recession is coming, or it has already begun. It should be positive for gold prices. After the real GDP declined in the first two quarters of this year, many commentators declared that the economy had fallen into a recession. Such calls are met with a fierce denial from the government’s officials. Both President Joe Biden and Treasury Secretary Janet Yellen insisted that the economy is not in a recession but in a “state of transition”. Recession or Transition? Who is right? Well, in a sense, both sides are right – and both are wrong. Why? Two consecutive quarters of negative economic growth constitute only the so-called technical recession. Which is the popular definition of recession used widely by the financial press and those analysts who don’t want to wait several months for the final verdict of the National Bureau of Economic Research (NBER), the official arbiter of recessions in the U.S. Also, not all people like the idea that recessions are decided by a small committee of Ph.D. economists. However, what’s the official NBER definition of recession? It is “the period between a peak of economic activity and its subsequent trough, or lowest point” and “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Although most of the recessions identified by the NBER do consist of two or more consecutive quarters of declining real GDP, not all of them do. This is because what also matters is the depth of the decline, and economic activity is not identified solely with real GDP, but with a range of indicators: Because a recession must influence the economy broadly and not be confined to one sector, the committee emphasizes economy-wide measures of economic activity. The determination of the months of peaks and troughs is based on a range of monthly measures of aggregate real economic activity published by the federal statistical agencies. These include real personal income less transfers, nonfarm payroll employment, employment as measured by the household survey, real personal consumption expenditures, wholesale-retail sales adjusted for price changes, and industrial production. There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions. There is no fixed rule! So, basically, dating the peaks and troughs of the business cycles by the NBER resembles deciding which pictures are pornographic by the Supreme Court. “I know it when I see it,” as Justice Potter Stewart famously said. Anyway, the key question is whether the U.S. economy is experiencing a significant and broad-based weakening. Not yet. As the chart below shows, the decline in the real GDP wasn’t too deep, at least so far. I mean here that the GDP dropped 0.4% in Q1 and 0.23% in Q2 (quarter-to-quarter), which is significantly less than in past recessions. However, I wouldn’t be surprised if the GDP declined in the third quarter as well. What’s more, other indicators, such as real personal income, real personal consumption expenditures, or industrial production, don’t call for a recession either. However, they show weakness, while some other indicators are flashing red. The yield curve has inverted, the manufacturing PMI is slowing down, and home sales are plunging. The recession may not be there yet, but it’s coming! We may be unprepared, but at least we have memes! Another issue is that the pundits say that we shouldn’t fear recession because the labor market remains strong. However, given that employment never fully recovered from the pandemic, the GDP may decline with relatively strong nonfarm payroll numbers. It’s also worth being aware that the labor market may be in worse conditions than it’s commonly believed. After all, according to the household survey (instead of the establishment survey), the U.S. economy lost 168,000 jobs since March 2022 (see the red line in the chart below). Additionally, according to PwC’s survey, half of more than 700 US executives and board members said they are reducing headcount or plan to, and 52% have implemented hiring freezes. So, layoffs are becoming more widespread, which is pretty odd for a “strong” labor market. Will It Be Beneficial for Gold? The general problem with both the popular and NBER’s definitions of recession is that they merely describe the various manifestations of recession instead of explaining its essence. So, what is it? According to Frank Shostak, a recession is a period of liquidation of economic activities that came into being because of the credit expansion and loose monetary policy of the central bank. In other words, just like a hangover is an unpleasant but necessary readjustment process after a previous alcoholic binge, a recession is an unpleasant but inevitable readjustment period after previous distortions of the economic structure...