Recession Warning Signs Are Flashing Louder Than Ever: 3 Ways to Protect Yourself

With recession warning signs flashing louder than ever, gold stocks like Kirkland Lake Gold Ltd. (TSX:KL)(NYSE:KL) may enjoy upside.

Close up of newspaper headline for financial crisis news

Image source: Getty Images.

It’s been over 10 years since the last North American recession, and Wall Street is starting to worry we’re headed for another one. After the U.S. two-year and 10-year yield curve inverted, commentators began speaking of the metric’s unassailable ability to predict recessions. It is true that yield curve inversions predicted nine out of the last 10 recessions, although the lag time between inversion and recession was often quite long — in one case, 22 months.

Regardless, when you’ve got inverted yield curves, investors piling into gold and silver, and raging trade wars at the same time, it’s a good idea to review your portfolio. The following are three asset classes you can consider for “recession-proofing” your holdings.

Bonds

Short-term bonds are many portfolio managers’ go-to investment in recessions. Lacking the downside of stocks and the volatility of long-term bonds, they’re a staple recession holding. Treasury bills are considered essentially risk-free, while short-term government bonds are close to it. Of course, bonds don’t have the upside you get from stocks in good times, so if you’re going to switch to bonds to protect yourself from a downturn, make sure to continually revise your portfolio and look for signs of a future recovery — at which point, you’d want to switch back to stocks.

Utilities

Utility stocks are another recession go-to. Although they aren’t quite as safe as bonds, they’re fairly stable and tend to fall less during recessions than other equities. Utility stocks also pay stable dividends, which may stay consistent or even rise during recessions. For this reason, utilities are often considered bond alternatives — equities that you can count on to deliver steady returns and hold their value well during recessions.

Gold

A final asset class to consider for recession protection is gold.

Gold tends to rise during recessions, as jittery investors seek the protection of a hard asset that will hold its value even when the bottom is falling out of everything else. It makes sense. Gold is one of the oldest stores of value in the world and has proven its resilience from antiquity until today.

There are many ways to invest in gold. You can buy physical bullion, which requires storage but may be the best option for protection against a true economic collapse. You can buy options, which are risky but tend to amplify returns.

Or, you could invest in gold stocks. Gold mining companies tend to rise as gold itself rises, and their returns may exceed those of the commodity itself.

A great example of this is Kirkland Lake Gold (TSX:KL)(NYSE:KL). Up 78% year to date, it has performed far better than gold itself. The company has mined about 450,000 ounces of gold so far this year and is seeing its extraction costs fall at the same time as the commodity price rises. In the company’s most recent quarter, it reduced its mining costs by about 29%, which contributed to a 69% increase in net income. It aims to mine 920,000 to one million ounces this year and is well on its way to hitting the target. If it does, we can expect the stock’s epic rally to continue.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »