S&P Corrects as Economic Warning Signs Multiply. And Gold…

If stocks slide, gold, silver, and miners would be likely to initially slide as well.

The major stock market indices have corrected today after last week's significant declines, but this pause offers little reassurance given the growing constellation of economic warning signals. The NASDAQ remains in correction territory, while the S&P 500 and Dow experienced their worst weekly losses since 2023, with the Dow dropping 4.4%. These market movements are not merely technical corrections—they represent a fundamental reassessment of economic risks that aligns precisely with my previous analysis.

1. Official Recognition of Recession Risk

Treasury Secretary Scott Bessent's statement that there are "no guarantees" the U.S. will avoid recession this year marks a significant shift in official rhetoric. When senior administration officials begin publicly acknowledging recession possibilities, it often signals their awareness of deteriorating economic conditions not yet fully reflected in headline data. President Trump's similar unwillingness to rule out recession further reinforces this concern.

Such candid acknowledgments from top officials typically occur only when internal economic indicators have deteriorated beyond the point where optimistic messaging remains credible—a pattern observed before previous economic contractions.

1. Retail Sales Confirm Consumer Weakness

February's retail sales increased just 0.2%, well below the expected 0.6% gain, while January's figure was revised sharply lower to a 1.2% decline. This data confirms the consumer weakness I highlighted in my previous gold price analyses and represents precisely the kind of economic deceleration that historically follows yield curve de-inversion patterns.

The magnitude of the January revision is particularly troubling, as it suggests economic conditions were significantly weaker than initially reported during a period when market optimism was reaching its peak. This divergence between economic reality and market sentiment closely parallels pre-1929 conditions.

1. Federal Reserve's Policy Dilemma

The Federal Reserve meets this week amid increasingly contradictory economic signals. Markets now expect three rate cuts this year—more than the Fed's December projection of two cuts—reflecting growing recession concerns. However, some economists warn that tariff-driven inflation could limit the Fed's ability to respond to slowing growth.

This policy dilemma mirrors the monetary conditions that preceded major historical market corrections. The central bank finds itself constrained between competing risks, unable to address growth concerns without potentially exacerbating inflation pressures from tariffs. This dynamic creates precisely the kind of policy uncertainty that historically precedes significant market dislocations.

1. Tariff Impact Spreading Through Economy

The American Chamber of Commerce to the EU's warning that trade tensions could jeopardize $9.5 trillion in annual transatlantic business underscores the magnitude of economic disruption at stake. As I previously noted, the parallels to the Smoot-Hawley Tariff Act of 1930 continue to strengthen, with the same pattern of escalating retaliatory measures that historically amplified economic downturns.

Economist Stephen Brown's comment that "consumer spending is on track to slow sharply this quarter" (and did production costs decrease?) directly connects tariff uncertainty to deteriorating economic fundamentals. This relationship between trade restrictions and economic contraction follows the historical pattern we've identified.

1. Market Implications

The S&P 500's 8% decline from its February 19 high represents the initial market recognition of these accumulating risks. Based on historical precedents, such initial corrections often precede larger movements as economic reality more fully manifests in data.

On a very short-term basis, stocks corrected to their mid-2024 high and now they are moving back down – perhaps the corrective rebound is already over.

For gold investors, these developments create competing forces. Economic uncertainty and geopolitical tensions (evidenced by U.S. strikes against Yemen's Houthis) typically support gold prices. However, I want to emphasize this once again – the big declines in stocks take gold, silver and miners lower, with the declines in the last two being particularly significant. Yes, they all come back before stock bottom, but not without a massive decline first.

The continued resemblance to historical pre-recession patterns reinforces our previous analysis about market vulnerability. As official recognition of economic challenges grows more explicit, the probability increases that markets will move from the current correction phase into a more substantial adjustment reflecting deteriorating fundamentals.

1. Technically Speaking

Gold failed to hold above $3,000 on Friday, and it’s making another attempt to break above this key resistance level once again today.

Will it be successful? I doubt it. The initial failure was a sell signal, and while today’s rally in gold might seem encouraging, it does not change the above. It doesn’t change the similarity between now and 2011, either. In other words, my Friday’s comments on the current gold price movement remain up-to-date, and this will remain to be the case unless gold’s breakout above $3,000 is confirmed by three consecutive daily closes. We haven’t seen a single close above $3,000 so far.

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   1. The $3,000 Mark and Historical Parallels

Gold reaching $3,000 represents a critical technical milestone that bears striking resemblance to the 2011 scenario we previously highlighted. 

In 2011, gold topped relatively near the psychologically important $2,000 level before beginning a multi-year decline. 

Friday’s (invalidated) breakthrough of $3,000 comes with similar technical warning signs – rapid price acceleration, increasingly bullish Wall Street forecasts, and sentiment driven primarily by geopolitical rather than fundamental factors.

Macquarie Group's dramatic upward revision of price targets to $3,500 is particularly noteworthy. When major institutions rapidly revise forecasts upward to chase price action, it often signals late-stage market euphoria rather than sustainable growth. This pattern of Wall Street "playing catch-up" with gold prices echoes the sequence of ever-higher price targets that preceded the 2011 reversal.

So, while seeing 3 at the beginning of gold’s price is definitely exciting (especially for those holding gold in their IRAs), this might not last for long – especially that gold is currently getting a boost from the pre-FOMC tensions.

Thank you for reading my today’s analysis. If you’d like to stay updated with our other free analyses, I encourage you to sign up for our free gold newsletter today.

Thank you.

Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief