Is the recession coming? Why silver is always a good asset to hold (2024)

As 2024 fast approaches, the topic of recession is again the talk of the town. Is a recession coming or not? While financial experts may differ in their forecasts, it is clear that if a recession takes place, it will be the most anticipated one, as everyone is talking about it.

In discussions about a recession, hard assets, particularly precious metals like gold and silver, are brought to the forefront as well. At Denario, we firmly believe that silver has always proved its worth as money for uncertain times. The first fears of recession emerged last year and silver has performed strongly since late summer through to 2023. From a low of $17.4 in August 2022 to $23.3 in November of this year, silver’s performance is more than 33%.

The rise of silver tokens

Silver’s recent rise has also induced technologists to turn to the white metal again. As such, efforts to tokenize silver, thereby making it easier to transact and more appealing to digital asset investors, have increased tremendously. With Denario, we are part of this tokenization race, bringing digitized silver to the market.

To purchase silver, investors can consider Denario Silver Coin (DSC), a Swiss-compliant crypto asset backed 100% by physical silver granules. The Polygon-based token merges the intrinsic value of hard assets as well as the inclusivity of digital assets, helping investors enjoy financial empowerment and bridge the gap between digital and real-world assets.

Thanks to tokenization efforts, investors willing to buy physical silver no longer have to grapple with the hassle of storing the silver. They can buy and hold a silver-backed token as a digital bearer instrument in their digital wallet – thus still keeping self-custody of their assets.

Silver’s performance in a recession

So yes, silver is a safe haven asset and can still be held independently in the digital age. But what about silver’s performance in a recession?

While a recession could negatively impact silver because it is one of the few commodities that has actual monetary and industrial value, it has historically profited from economic recovery and reflation at the end of a recession. Also, it should be noted that silver has historically shown positive performance during the initial and final stages of previous recessions.

Another aspect that must not be forgotten: Silver has a historical correlation with gold, often following the general trends in the price of gold but with greater price volatility. Depending on what gold does in anticipation of a recession or once the recession actually hits, its little brother silver will do in a more sizeable fashion.

But now that we have talked about silver’s role in a potential recession, we want to turn the elephant in the room. Is a recession really coming? What do the facts and figures say? Let’s take a look.

Slowing down, yes – but no falling off a cliff for now!

One of the indicators that financial experts look at when determining an impending recession is the global gross domestic product (GDP). According to the IMF, a recession is typically associated with a 2% drop in GDP. In severe recessions, the decline is usually 5%.

As of 2022, the global GDP was $100.22 trillion compared to $96.3 trillion in 2021. This was a 4% increase. Morgan Stanley predicts that the global GDP growth will slow to 2.9% in 2023 (a 1.1% drop relative to 2022) and expand by 2.7% in 2024. A different forecast by the UN expects the 2023 GDP growth to slow to 2.3% (a 1.7% decline relative to 2022) and expand by 2.5% in 2024.

Here is a graph displaying the projected global economic output performance in orange. Based on these numbers, the anticipated global GDP growth will contract by less than 2%, indicating that we are not at the recession level yet.

The ISM (Institute of Supply Management) manufacturing index is another vital indicator. It gauges the economic activities of manufacturing firms, like the amount of new hires and orders they are receiving.

The ISM manufacturing index has been falling since 2022, but it was not until mid-2023 that it dropped below the 47 index mark, a level last recorded during the 2020 recession. Since then, the ISM has bounced back and now appears to be approaching the 50 index mark, alleviating fears of a recession. However, the danger of a recession isn’t completely out of the picture as long as the ISM remains in the contraction zone (<50).

What are key markets signaling?

The real estate and labor markets are some of the most significant markets in the world. Therefore, they can provide crucial insights into whether a recession is coming.

Looking at the US real estate market, mortgage rates are at extremely high levels. As a result, existing home sales have slumped and are at a 13-year low, as shown in the chart below. Also, high mortgage rates have locked out new buyers and kept existing buyers from moving.

On the contrary, permits haven’t dipped, signaling that home builders aren’t fearful of a recession.

Next, the labor market appears to be hanging in there since jobless claims are muted compared to previous recessions. As of now, there has been a slight rise in jobless claims, but the numbers aren’t yet recessionary. Moreover, the number of continuing claims hasn’t spiked, denoting that we are not close to a recession yet.

Still, it’s essential to remember that the labor market is the last to fall, so it is worth it to keep on watching it closely. That said, economic indicators and key markets are okayish based on what we have seen above. Given these facts, there seems to be no need for immediate worry. So why, then, are some people concerned?

The monetary side of things

There will always be fearmongers and crash prophets anticipating a recession to be close at hand. While they may sometimes be correct, their forecasts are often unreliable. Therefore, it’s wiser to look at the numbers rather than allowing fear to dictate your next move.

Still, different sets of facts and figures don’t always have to add up just nicely. If we look at the monetary and fiscal side of things, there is room for concern. The historically fast rise in interest rates by central banks to really high levels consistent with past recessions has already been mentioned.

Also, when looking closer, the economic growth that is taking place in the US is happening against the backdrop of endless net debt growth instead. And whether this debt growth is resulting in actual productivity has to be called into question. After all, it is the government that is growing disproportionally, spending more than it is making. That means the economy is less resilient than reports state.

The last monetary aspect worth noting is that global and US money supplies are contracting due to interest rate hikes. The US M2, a measure of money supply, is currently experiencing the tenth straight month of contraction. The M2 money supply growth is also negative for the first time since the 1950s. However, if we turn to the global M2 money supply, we see that other countries must have already heel-turned to printing again as this number is from the bottom it reached towards the end of 2022.

Whatever comes next, got silver?

So again, is the recession coming? As we just tried to argue, no one really knows what will happen next. But what seems certain though: Should a recession hit, people will likely move to safe-haven assets like gold and silver.

More importantly, gaining exposure to silver can help investors weather fiat currency devaluation, whether there’s a recession or not. And while the latter might not necessarily be in the card, the former surely is.

With the Denario Silver Coin (DSC), investors have an easy way to protect their hard-earned wealth, whether a recession is coming or not. DSC is issued by Denario AG, a Switzerland-based company and a member of the Self-Regulatory Organization (SRO) VQF. Thus, the physical silver granules are safely and securely stored in Swiss vaults. To ensure all this, the company is made up of professionals with experience in the TradFi, Fintech, blockchain, precious metals, and legal sectors.