Adrian Day: Soft Landing Won’t Happen, Look to Gold in Coming Recession

Just because a US recession hasn’t arrived yet doesn’t mean it’s not coming, said Adrian Day of Adrian Day Asset Management. And in his view, gold and gold stocks are likely to perform well when it hits.

He pointed out that going back to the 1960s, recessions occur an average of 22 months after the US Federal Reserve first starts raising interest rates. And in this case he thinks it’s taking even longer for Fed’s hikes to have an effect.

For one thing, the country had a period of ‘excessively easy money,’ with both households and corporations taking advantage of low interest rates. For another, real rates have only been positive for a few months.

‘People who think we’re going to have a soft landing because we haven’t had a recession yet — I think they haven’t studied history, but they’re also living in cloud cuckoo land in my view,’ said Day.

He noted that people tend to assume that gold and gold stocks will do badly in a recession, but this isn’t the case. In fact, gold has risen in all of the recessions since the 1960s except one, and gold stocks were up in six out of nine recessions during that time. What’s more, even when they were down, gold stocks still outperformed the S&P 500 (INDEXSP:.INX).

‘If we have a recession, I don’t think we should be afraid of gold and gold stocks,’ said Day.

Above all, he encouraged patience. ‘If you have a scenario that makes logical sense to you and it seems inevitable to you, don’t get too impatient. Things always take longer to play through than we expect them to — always,’ he said.

He also said those buying high-quality senior miners and royalty companies shouldn’t be upset that they’re not moving fast enough. ‘If you buy Agnico Eagle (TSX:AEM,NYSE:AEM) under $50, you’re buying a great company at a great price. And in 18 months or in 24 months you’re going to be very, very happy you bought it,’ Day explained.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.