Mirror, mirror on the wall, which asset is most mispriced of all? According to a Goldman Sachs alum who predicted the financial crisis in 2008, it’s gold.

The precious metal should be a lot more expensive when the likelihood of a global financial collapse and a move toward negative interest rates is accounted for, says Global Macro Investor founder Raoul Pal, who now sees a U.S. recession within 12 months.

Recent losses for gold may have dented investor confidence. Gold US:GCZ6 is up 18% this year, but the first full week of October marked its worst seven-day performance in over three years; it also posted a three-month loss of nearly 6% on a continuous basis.

Uncertainty about Brexit and the timing of a Federal Reserve rate hike triggered a rush into the dollar, which often moves inversely to the metal. (Higher rates can work against gold, but the metal becomes a safe haven if the economy slows.)

“As we get to negative interest rates, gold is a good place to park your cash,” said Pal, who discussed his outlook with MarketWatch in a September interview and a follow-up conversation over email.

“I’m not a gold bug,” the former GLG Global Macro Fund co-manager — who is also watching the dollar closely — “but this is the currency I would choose now.”

Pal, an economist and strategist, also co-founded Real Vision TV, which conducts interviews with prominent investors. Many of his recent guests share his enthusiasm for gold, according to Pal.

“All the really serious thinkers are interested in gold,” he said.

How a U.S. recession could boost gold and the dollar

Pal’s core presumption — one he’s held since 2014 — is bad news for the U. S: He is convinced the country is headed for recession within a year. “The business cycle points to that,” he said, “and 100% of all two-term elections have had a recession within 12 months since 1910.”

His view contrasts with the Federal Reserve’s own indicator, based on corporate-bond spreads, that predicts just a 12% chance of a pullback in the next year.

But Pal does have some prominent company: Savita Subramanian, Bank of America’s head of equity strategy, recently predicted the same; Janus Capital’s Bill Gross spoke of a lagging U.S. recovery in his September investment note; and bond investor Jeffrey Gundlach showed a chart during a recent webcast that revealed the start of a recession. And Wilbur Ross sees one coming in 18 months.

Should his prediction come true, Pal says, gold prices could double. If central banks want to get active and combat a slowing economy, he says, they will try to stimulate the economy via printing money or more easing, all of which plays “into the hands of gold.”

This view brings Pal to the asset he favors most over the next year out of bonds, equities, currencies and commodities: the dollar. He told MarketWatch he’d buy U.S. dollars, selling the euro, pound and Aussie dollar; he expects the euro EURUSD, +0.00% to eventually drop to 75 cents against the dollar — about 32% below current levels — over time.

“The world has shifted because of negative interest rates,” Pal said. “We know the dollar will go higher, [and] gold may outperform over time, the reason being because of negative interest rates. If I get it right, I have dollars and gold…I don’t make much of a loss if that correlation breaks.”

Year-to-date, the dollar index DXY, +0.01% is down nearly 1%, which some blame in part on an inactive Fed. Interest-rate increases can have a positive effect on a country’s currency by making it more attractive to foreign investors.

But Pal insists that his dollar call is not tethered to central bank policy, saying investors should let go of the belief that those institutions are like “the Wizard of Oz.” Investors, Pal said, believe the Fed’s policy choices can keep stocks from falling even as Japan and Switzerland have proven otherwise.

Read: Central banks ‘have never been on thinner ice’

The Bank of Japan “has done more easing, as has the Swiss,” Pal said. “It’s not achieved anything. Stock markets there have fallen, yet the market wants to believe the Fed that there is an implicit put on the stock market in the U.S.”

Switzerland has had negative interest rates in place since early 2015, yet stocks SMI, +0.57% fell 1.6% in 2015 and are down nearly 10% so far this year.

Japan moved to negative interest rates this year, yet the Nikkei 225 NIK, -0.05% is down nearly 12%.

3-month Libor (inverted) versus Deutsche Bank shares Real Vision

He believes the market is currently short the dollar and should a banking crisis crop up in Europe, he says, euros will get less attractive as investors prefer dollars. In a recent interview on Real Vision, Pal discussed the problems at Deutsche Bank DB, -2.39% — but also how the problems extend far beyond Germany’s borders.

Spanish banks — ones like Banco Sabadell SAB, +2.22% , Banco Popular ES:POP — they’re all in free fall, [at] all-time lows,” Pal said. Italian banks, with still unresolved bad debt issues, are still a problem, and then Swiss and U.K. banks also look unwell, he said.

“I think it’s the start of something,” he said of Deutsche Bank’s woes.

Read: How Deutsche Bank is Lehman Brothers and how it isn’t

The dollar, Pal said, also looks favorable against the backdrop of the three-month U.S. dollar Libor (London interbank offered rate), the benchmark rate some of the world’s biggest banks charge each other for short term loans. When those rates are rising, he says, dollars are more attractive.

In the last 12 months, Libor has nearly tripled, he said, moving from 0.31% to 0.88%.

“It is also a sign that there is distress among dollar borrowers abroad, so they might need to buy dollars to close out their risk,” said Pal. Financial institutions, in other words, are fretting about potential market downside, and when they get worried, the Libor moves higher.

The one chart he uses to track economic cycles

Pal is not a fan of U.S. stocks — the S&P 500 index SPX, +1.05% is up just 3.7% so far in 2016 — largely because of what he sees in a chart he says that has failed him just once when he didn’t trust it. Now, he says, it’s telling him his recession prediction is spot on.

That chart is the Institute for Supply Management index, which is based on surveys of more than 300 manufacturing firms and gauges the health of the industry. The ISM rebounded in September, to 51.5% from 49.4% the previous month. But economists still say the U.S. manufacturing sector faces challenging conditions.

“There’s a difference between the narrative, which is what you’re being told, versus the reality of the economic data,” said Pal. “It’s in no one’s interest ahead of the election to say the U.S. economy is a mess — [that] world trade freight shipments, container shipments, retail sales, restaurant sales, factory orders, durable orders are all showing a recession.”

Pal says the ISM correlates well with U.S. assets. “It peaked in 2011 and has been bouncing around 50 for a while now,” he said. “The moment it starts to get to 47, 46, the odds of a full-on recession explode to 85%. We’re very close now, getting to the point where the probability is very high.”

Pal’s go-to chart showing ISM versus the S&P 500 (year over year) Real Vision

The ISM is one reason he’s not keen on U.S. stocks, as he says he prefers to be underweight when they are near all-time highs, then wait for the business cycle to bottom — generally, 12 to 18 months after the start of a recession based on past bear markets — before getting back in.

“It could be a shallower recession,” Pal says, but “the probability is that most last around that period of time and investors need to be aware of that.” (A fuller explanation of his thinking can be found in a June video Real Vision posted on YouTube.)

And Pal urges investors not to expect Fed interest rate increases to sustain a bull market. Even if the central bank raises rates several times over the next two years, he says, they will still be low. “Interest rates follow the economic cycle and do not lead it. As the economy weakens, the government cuts interest rates.”

In other words, he says the Fed is always reactive — never proactive.

This story was first published on Oct. 14, 2016. It has been updated to correct a reference to the degree Pal expects the euro will fall against the dollar.