Buying Precious Metals Investments Precious metals, such as gold or silver, tend to perform well during market slowdowns. But since demand for these types of commodities often increases during recessions, their prices also tend to rise. During a recession, the value of gold tends to increase. That's why, due to economic uncertainty caused by a recession, more people are turning to gold as a “safe” investment option.
Hug says that the big drivers of the price of gold in the market are usually central banks. At a time when foreign exchange reserves are large and the economy is advancing, a central bank will want to reduce the amount of gold it holds. This is because gold is a dead asset, unlike bonds or even money in a deposit account, it doesn't generate any return. In their article entitled The Golden Dilemma, Erb and Harvey point out that gold has positive price elasticity.
So, if inflation isn't driving the price, is fear? Certainly, in times of economic crisis, investors are flocking to gold. Jeff regularly speaks at precious metals conferences, serves on the board of directors of Strategic Wealth Preservation in Grand Cayman and provides exclusive analysis and market commentary to GoldSilver customers. While all of these reasons make gold a desirable investment option during recessions, there are a few things you should keep in mind. Even though countries like India and China treat gold as a store of value, people who buy it there don't trade it regularly (few pay for a washing machine by delivering a gold bracelet).
The table below shows the eight largest declines in the S%26P 500 since 1976 and how gold and silver prices responded to each of them. Some forces affect the supply of gold in the broader market, and gold is a global commodity market, such as oil or coffee. If the line is below zero, gold moves in the opposite direction to that investment more often than with it; if it is above zero, it moves with that investment more often than against it. The problem for central banks is that it is precisely when other investors are not so interested in gold.
Arguably, the most infamous recession in modern history, the Great Depression of the 1920s and 1930s, is an early indicator of the nature of the rise in the price of gold during the economic crisis. Investors buy gold as a way to protect themselves from inflation and the threat of an economic crisis. Experts suggest that when stock market prospects appear discouraging, buying gold is fiscally responsible in preparation for potentially impending financial difficulties. Therefore, if you analyze the price of gold, it is often best to check how well the economy of a particular country is performing.
As an investment, gold can preserve the value of assets and encourage investors looking to diversify from riskier equity investments.