Posthaste: You might not have heard of this recession indicator — but it's getting louder
Here’s a recession warning you might not have heard of — and it’s getting louder.
Oil prices have plunged this year by almost 21 per cent while gold has gained about 26 per cent, widening the gap between the two to almost 50 per cent.
“Rapidly rising gold and plunging oil aren’t good signs for the global economy and this year to May 5 is among the most extreme examples,” writes Mike McGlone, senior commodity strategist for Bloomberg Intelligence.
“A global reset signalled by gold’s outperformance appears to be happening with implications for deflation that could be as steep as the inflation of the past few years.”
The disparity is the fourth biggest in the years between 1925 and 2025, he said, and the closest parallels are 1934 and 2007, the years preceding the Great Depression and the Global Financial Crisis. In 1933, there was a 50 per cent gap between gold and oil, and in 2008 it widened to 60 per cent. The 47 per cent gap so far this year has already overtaken that seen during the pandemic in 2020, according to Bloomberg data.
Oil prices were up today and gold was down after the United States and China agreed to reduce tariffs for three months, easing trade tensions.
McGlone expects the trend, which he says existed before the Trump’s election and tariffs , to deepen, predicting that oil will fall near US$40 a barrel and gold will rise to US$4,000.
“A lower U.S. stock market may be a top force to get there,” he said.
He’s not alone in his prediction. In recent weeks Goldman Sachs, JPMorgan and Bank of America have all raised their gold forecasts to near or at US$4,000.
Gold has a low correlation to equities, bonds and commodities making it an effective hedge, particularly when these traditional assets are falling together as they have been recently.
Central banks have increased their gold purchases about fivefold since 2022, and over the past six months, bullion held by the People’s Bank of China rose by close to 1 million ounces or about 30 tons, reports Bloomberg.
Investors are also piling in. A recent Gallup poll showed gold has overtaken stocks as the second most popular long-term investment among Americans. Real estate is the top choice, but the public preference for gold rose five percentage points to 23 per cent, overtaking equities which fell six points to 16 per cent.
Gold has gone from being just a safe haven to a strategic asset in investors’ portfolios, say analysts at FTSE Russell, who recommend investors hold 60 per cent equities, 20 per cent bonds and 20 per cent gold.
Since 2020, the 60/20/20 portfolio has outperformed the traditional 60/40 holding, they said.
“It is no longer merely a defensive store of value, but a dynamic, strategic tool for navigating complexity in the multi-asset space,” said FTSE Russell analysts Sayad Reteos Baronyan and Alex Nae.
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Canada’s unemployment rate rose in April to 6.9 per cent, a level last seen in November and this highest since January 2017 outside of the pandemic.
This is the third month in a row where jobs have either flatlined or fallen, putting the average pace of job gains at -8,000 over the past three months.
April’s data points the blame at trade tensions. The largest drop in employment was manufacturing which lost 31,000 jobs and wholesale and retail trade, down 27,000.
“Overall, we are seeing a job market that was weak heading into the trade war, now looking like it could soon buckle,” said Ali Jaffery, an economist with CIBC Capital Markets.
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McLister on mortgages
Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.
Financial Post on YouTube
Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.
Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.
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