By Andrew Addison
In the recent edition of The Institutional View, it was highlighted that the level of delinquent credit-card payments in the United States is sounding the alarm for an impending recession. Delinquencies of both 30+ days and 90+ days are on the rise, indicating increasing financial strain on consumers.
Historically, an uptick in the percentage of credit-card holders making late payments has served as an early warning sign of an economic slowdown. As individuals find their balance sheets stretched thin, they naturally begin to cut back on their spending. This reduction in spending can affect both discretionary items like dining out and traveling, as well as essentials such as healthcare and food.
To better illustrate this trend, we have provided two charts below.
The first chart represents the percentage of credit-card payments that are at least 30 days overdue. By analyzing data from 2003, it is clear that when delinquencies broke their downward trend in July 2007, a recession was imminent. Additionally, this also served as a warning that the stock market was reaching its peak.
Conversely, when 30+ day delinquencies formed a double top pattern and subsequently broke below support, it indicated an improving economy. This break below support also acted as a bullish signal for the stock market.
The second chart focuses on U.S. credit-card delinquencies overdue by 90+ days, which reveals a similar pattern to the 30+ days overdue chart. As seen from the data, consumers are becoming increasingly strained financially, leading to a probable decrease in spending in the months ahead.
Given these circumstances, it comes as no surprise that speculation is growing regarding the Federal Reserve’s interest-rate tightening cycle. Many believe that the central bank has either finished or is nearing the end of this cycle. Consequently, the price of gold is approaching $2,000 per ounce once again.
In my previous column on November 1st, I discussed how gold’s trend turned bullish when it surpassed the $1,940 mark. My research suggests that bullion will reach its record high of $2,075 in the coming months. Furthermore, once it achieves a monthly closing price above $2,100, my analysis projects a long-term advance to $3,500 or beyond.