Vladimír Pikora: Investing in a Recession – Bonds and Gold are the Solution

The year 2023 will be very specific. Recession will enter the economy again. Some people are even afraid that it will be a global recession. It's been a long time since that. At the same time, high inflation will remain.

Interest rates from the world's key central banks will continue to rise, although they will be nearing their peak. This will be a complex moment for central banks. On the one hand, they should be raising their interest rates to stifle inflation, but on the other hand, they will not want to raise rates, as this would only prolong the recession. And so they will be flailing about, and investments will be more uncertain than usual.

Furthermore, global developments will be added to this. Many people think that the war in Ukraine will end soon because the West will wear Russia down with sanctions and arms supplies to Ukraine. However, this is a rather uncertain scenario. Russia has a large economy and is used to hardship. Ukraine could end up like Afghanistan. This means that Russia will eventually withdraw, but it will take a long time. In my opinion, this is a more likely scenario than the scenario that the war will end in 2023.

Shares should not react to such a situation with growth, although we saw it in the first half of January. In my opinion, shares should only start to grow when there is light at the end of the tunnel. This would slightly precede the economic cycle, but their growth would be based on rational expectations. That is not the case today. Today, shares are only growing based on the US central bank's announcement that it will slow interest rate hikes. In my opinion, this is not enough.

2023 should be an interesting year for gold. The fact that the geopolitical situation in the world is very uncertain and unclear should favour it. Central banks are therefore buying the most gold since 1967. Naturally, small investors are also buying gold in large quantities. We saw the fact that gold is a safe haven when the Russians attacked Ukraine. Stocks and cryptocurrencies went down. On the other hand, gold soared above $2000 per ounce, which was the second-highest rate in history. I wouldn't be surprised if gold jumped above $2000 per ounce again this year.

The year 2023 is also favourable for corporate bonds. These reflect the recent rise in interest rates. Their yields have risen above the usual levels. A corporate bond with a yield above 11 % is no longer the exception. Given that the Czech National Bank does not appear set to raise its interest rates this year – and indeed there is scope for a rate cut in 2024 – bonds offer an opportunity to lock in an unusually high yield for the coming years as well. Many people are therefore flocking to them at present. Naturally, the higher the yield, the higher the risk. However, this can be mitigated if the bond is secured. A secured bond with a yield above 11 % sounds very attractive to me. Personally, I will therefore be keeping a close eye on the price movements of gold and bonds this year.

Welcome again to my lecture on this topic on stage 2 entitled „How to invest during a recession. Bonds and gold are the solution.“

Vladimír Pikora, chief economist at investment group CFG and Dluhomat, vladimir.pikora@comfortfinancegroup.com