Gold acts in a unique way. Gold typically appreciates in value during economic downturns. That’s why many individuals look to gold as a “secure” investment choice as a result of the economic instability brought on by a recession.
Additionally, its history of autonomous performance makes it the wise choice for wealth preservation in a fragile environment. In order to safeguard themselves against inflation and the possibility of an economic collapse, investors buy gold.
During a recession, a spike in gold prices is not unusual. In fact, gold prices are a reliable indicator of the status of the American economy. When the economy is strong, alternatives like stocks, real estate, and bonds are seen as better investments, keeping gold at a low price.
Gold Prices During the Great Depression
An ounce of gold cost $35 in 1934 during the Great Depression, up from $20.67 in 1929. The Federal Reserve fought to keep the gold standard in place as the economy became worse. Technically, this action—along with several bank failures and the 1929 stock market crash—contributed to the Great Depression.
More individuals began to accumulate gold because they saw it as a safety net. America continued to use the gold standard even after Europe did so.
The Gold Reserve Act, which outlawed the ownership of gold in most forms, was required for President Roosevelt to sign. People were compelled to surrender their gold coins, certificates, and bullion for $20.67 per ounce of paper money. The federal government’s gold reserves were increased because to this arrangement.
The price of an ounce of gold was then raised by the government to $35. The government was able to issue more paper money thanks to this rise, which allowed the economy to resume expanding.
Gold Hit New High in September 2011
A dismal employment report, continuous Eurozone financial crisis, and anxiety about the United States’ debt ceiling all contributed to an almost doubling in the price of an ounce of gold on September 2, 2011, from $1,000 in 2009 to $1,873.73.
The globe had just emerged from the 2008 financial crisis when gold was trading around its all-time high price of $1,032 in September 2009. Many people believed that economic growth would bounce back as swiftly as it did after past recessions. In contrast, others were inclined to take advantage of the dollar’s weakening position and invest in gold.
Those that caved into the pressure realized substantial rewards. These returns occurred due to the economy not recovering as rapidly as many had believed it would, putting investors on edge, and the high rates of foreclosure in America and the rising debt issues in Europe.
Gold Reaches New Heights during the 2020 Recession
Gold prices have increased significantly during the current crisis, breaking the previous high set in 2011. A gold ounce’s closing price on July 23, 2020, was $1,882.35 per ounce. But the rise in gold’s cost did not end there.
Gold prices rose to an all-time high of $2,062.50 per ounce in August as investors continued to worry about the effects of the 2020 recession. Because of concerns about inflation, low US interest rates, and a depreciating US currency, market analysts anticipate gold to continue posting strong gains.
A number of Wall Street experts continue to be positive on gold, with some of them stating that it would not be “unreasonable” if gold prices rose to the $3,000 or $4,000 range as more and more investors seek out safe haven investment options.
Is it Fruitful to Invest in Gold During a Recession?
Many business experts believe that buying gold during a recession is a safe bet. The inherent value of gold is one of the key causes of this. The strength and stability of a nation’s economy determine how much a real currency, like the dollar, is worth. Dollar values frequently decline when there is unrest.
Furthermore, many prefer gold to the stock market since, during a recession, more businesses start turning a loss. When used as an investment, gold may help protect the value of assets and entice investors to diversify away from more volatile stock investments.
If the nation experiences negative interest rates, gold would also become a tempting alternative. If inflation rises above nominal interest rates, the price would fall. Saving at a bank will be less appealing when there are negative interest rates.
And to top it all off, gold has historically done well when the economy is unstable. The Great Depression, the Second World War, the shock of the oil price in 1974, and the recessions of the 1980s and 2000s were all successful periods for it. That steadiness is remarkable.