US consumers still worried

US consumers are still worried, according to the latest confidence index reading from the Conference Board, the 100 year-old US non-profit think tank. An opinion poll by Reuters in advance had concluded that the index would give a reading of 104 for September (having revised upwards its August figure to 105.6) but it turns out that it dropped to 98.7. The Board's chief economist said "consumers' assessments of current business conditions turned negative while views of the current labor market softened further." Which was something of an under-statement; the drop was the largest in three years, and the reading was the lowest since February 2020, just before the pandemic struck. Two months before the US Presidential election such news of consumer pessimism just adds to the uncertainty about the vote's outcome. The typical blue-collar worker - earning around $50,000/year - showed the largest drop in confidence. Economists in 2022 started to predict a recession, when the Federal Reserve was pushing interest rates higher to try to tame inflation. Now it's started to lower rates, hoping to achieve the magical 'soft landing' - inflation back to 2%/year without widespread job losses. No-one knows with any certainty if this is still achievable.

Rosy indicators

There have certainly been some rosy macro indicators this month. According to a Reuters assessment on 16 September "by some financial measures US consumers are better off than they have been in decades". Household debt as a percentage of gross domestic product (GDP) has now fallen to 71%, the lowest in 23 years. Gasoline prices are below $3/gallon in numerous US states, which will cheer consumers and help the country's economic growth. Rather than coming to a shuddering halt, the consensus among banks' analysts and independent economists seems to be that an imminent US recession is less than likely. The OECD (the 38-country Organisation for Economic Cooperation and Development) has just marginally increased its growth forecast for this year, from 3.1% to 3.2%. And Adobe, the software company, is now predicting a new record US online spending in the holiday season at the end of this year, at $240.8 billion. Does that sound like a recession?

Vacuous promises

Much of that spending - and America's GDP is heavily dependent on consumer spending - is likely to be on credit or discount-driven. A recession may or may not be on the cards. Like a stopped clock which will show the correct time twice daily, at some point a recession will arrive. Politicians on both sides of the Atlantic like to - indeed must - make promises to their voters of 'sunny uplands' ahead. But they are not trusted; they have disappointed too often. The British Social Attitudes (BSA) survey in June this year showed dissatisfaction with the way the UK is governed (admittedly prior to the general election) was 79%. Just 60% of voters in the July general election bothered to turn out to vote. In 1950 the figure was almost 84%. In the US the National Election Study in 1958 found that around 75% of Americans trusted the federal government to do the right thing most of the time. Since 2007 the percentage saying the same thing has never been higher than 30%. Democracy is under pressure. The Carnegie Endowment for International Peace said at the start of this month that in this year of elections there was good and bad news for democracy. Preserving what we most value in democracies - freedom of association, freedom of speech, freedom of opinion, for example - depends on our confidence in those we elect to do the right thing.

Avoid disappointment

With wars in Ukraine, Lebanon, and Sudan, and turmoil across much of Africa and worries over China's intentions with regard to Taiwan, the world feels alarmingly close to a big meltdown. The United Nations exhorts combatant nations to make peace but mostly its words fall on stony ground; it regularly fails to enforce its commands. People can be forgiven if they sense history repeating itself. The League of Nations was established in 1920 with a mission to prevent conflict. But by the mid-1930s it had obviously failed as autocrats refused to cooperate. The UN today runs the risk of failing, again under pressure from autocrats.

Today's armed conflicts provide an important background context - not the driving force - for the high and still rising gold price. The strong price of gold is more reflective of the lowering interest rate regimen, which has only just got started. Central banks may nominally be independent of governments but they are well aware of what governments want, and do their bidding if possible. Thus we can expect a general reduction of interest rates around the world, to make money cheaper and credit easier, as governments fight to stave off recessions. Gold provides a safe haven against the fragility, certain incremental decline in purchasing power, and possible collapse, of fiat currency. When politicians disappoint, gold continues to shine brightly.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.