Beware of another interest rate hike? Facing an economic downturn, gold stocks are seriously undervalued

According to Kitco News, after the Federal Reserve held interest rates steady for the second consecutive meeting, the market is quite confident that the US central bank has ended the tightening cycle. However, Adrian Day, chairperson and CEO of Adrian Day Asset Management, said the probability of another rate hike is still more than 50%.

Beware of raising interest rates again

Despite the looming recession, the Fed may not be over yet, and "at the Fed's most recent meeting, 12 of the 19 Fed members still called for another rate hike this year," Day told Michelle Makori, chief live streaming host and editor-in-chief of Kitco News. "There's more than a 50 percent chance that we'll hike in December. But a lot depends on what happens between now and then."

This is in stark contrast to the market's current pricing, with the CME FedWatch tool indicating a 90% chance of keeping rates unchanged at the December meeting.

However, according to Day, the real message to watch out for is how long the Federal Reserve keeps interest rates high, another form of tightening.

The economic recession is coming

A recession is "a freight train coming our way", says Day, and a sharp slowdown is inevitable because of the lagging effect of monetary tightening.

As the recession engulfs the U.S. economy, the stock market is expected to lose 10% to 20% by the middle of next year, Day said.

Recent solid economic data releases, including a 4.9% annualized U.S. GDP growth rate in the third quarter, are tentative. Day said fourth-quarter GDP is likely to fall significantly, "I expect fourth-quarter GDP to fall significantly, but not negatively. Next quarter could be negative. Two or three quarters from now, the impact on the economy will be negative."

The Treasury's biggest mistake? The finance minister should face criminal negligence charges

The lagging effect of tighter monetary policy has delayed the recession, but it will permeate the economy next year.

"During the long period that began in 2008, everyone had the opportunity to refinance their debt. Households did it with mortgages, and companies did it by terminating debt and refinancing at a lower level," Day said. "Everyone in America did it except the U.S. government."

In a recent conversation with Paul Tudor Jones, Stanley Druckenmiller, head of the Duquesne family office, criticized U.S. Treasury Secretary Janet Yellen for making the worst mistake in Treasury history by not taking advantage of historically low interest rates to issue more long-term government bonds.

"Every Tom, Dick, Harry and Mary in America refinanced their mortgages when interest rates were almost zero," Druckenmiller said. "Unfortunately, we have one entity that doesn't do that, and that's the US Treasury."

Day apparently agreed with Druckenmiller, adding that the Treasury secretary in charge of Treasury issuance "should be tried for criminal negligence".

Day listed what Austria and other countries have done, and said the United States has missed opportunities for development.

Some assets thrive during economic downturns and are undervalued

Day advises increasing exposure to gold, silver and mining stocks during a recession, "Gold stocks are seriously undervalued. We are approaching a time when we are starting to see gold stocks attract buyers."