Recessions: What Causes Them and How to Spot Them Early?

A recession is a period of economic decline that continues for two quarters or more. When the Great Recession hit in December of 2007, it wasn’t until June 2009 that the U.S. economy began to show signs of life again. That meant 19 consecutive months of decreasing Gross Domestic Product (GDP)-the longest economic decline since the Great Depression.

 

Since then, the Great Recession has had long-lasting effects, which are still being felt 7 years later.

 

One example of the effects of the Great Recession is the stagnation of the federal funds rate. This low interest rate was set by the Federal Reserve to encourage borrowing and spending. However, the stagnation of real wages and other factors has forced the Fed to keep interest rates low. While this is good for economic recovery, it’s bad for economic growth.

 

Investors should be knowledgeable of the causes and impacts of economic recessions in order to protect their investments. Forewarning, understanding and predicting recession is easier said than done though.

 

Since WWII, the U.S. has faced over 10 periods of recession. Each are unique in regards to causes and impacts. Below is a list of varying signs that might help you predict a recession:

 
 
    • Decline in stock market or housing market
 
    • Increase in unemployment rate
 
    • High interest rates
 
    • Reduced consumer confidence
 
    • Reduced real wages
 
    • Increased inflation
 
    • Oil price hike
 
 

Precious Metals Offer Security Despite Recession

 

In terms of how to invest with the risk of recession, many investors look to diversification as a form of ensuring the security of their wealth. It’s recommended that investors put 5-10% of their assets into precious metals.

 

Metals like gold and silver offer security for investors because the precious metals market is not tied to the stock market. If the stock market crashes, your assets in precious metals are still valuable worldwide. Just take a look at gold charts to see the trajectory of gold values in the last century. Despite the 10 post-WWII recessions the U.S. has faced, gold value has continued to rise.

 

Investing in gold bullion could be just what your investment portfolio needs to protect your wealth from the impacts of recession. At Provident Metals, we make it easy to invest in precious metals.

 

Learn more about the advantages of precious metal investing by reading “4 Benefits of Investing in Physical Gold.”

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