Is gold a good investment in recession?

Gold has generally gained value during past recessions and has been excellent at offsetting stock losses, making it one of the most reliable hedges against economic downturns. It tends to perform well as investors seek protection from falling equities, rising 28% during the Covid-19 recession from January to August 2020. While gold will be volatile in a recession at the onset, it rebounds first once fear and margin calls subside, providing a smart tactic for diversifying a portfolio when a deeper slowdown or outright recession triggers potential rate cuts.

Is gold a good investment in recession?

When recessions hit, uncertainty takes hold, and gold is used for diversification in calculated amounts. A small move out of the big stock market or the big bond market means a big percent increase in the much smaller gold market, so the metal rises as portfolios rebalance. Gold has dipped at moments, yet gold will rebound first once the fear and margin calls subside, because periods of inflation are often associated with recessions and investors seek a stable reference.

Gold can work as protection when losses provoke uncertainty. Inherent worth gives protection, allowing the asset to maintain value. During past market contractions, the cost of precious metal rebounded. Worldwide recognition gives stability, so I started investing in gold.

Thomas Goldfreburg

Investor at Goldfreed

Is gold a safe investment during a recession?

Gold has a reputation for being a safe haven asset. Fear drives demand for safe haven assets during recessions, so investors tend to flock to gold as risk assets sell off. This flight protects wealth from market downturns, and the higher the losses of the S&P 500 the better gold performed: in recession years it outperformed the index by more than 13% on average.

Gold provides a hedge against stock losses during recessions and acts as a safe haven even outside recessionary periods. Because it is consistently in demand around the world and carries high liquidity, physical gold bullion becomes the preferred choice when investors desert higher-risk assets, for example, stocks in times of crises. Gold will rebound first once fear and margin calls subside, so its hedging effect offsets losses from stocks.

Gold is also a store of value. Gold's limited supply makes it an inflation hedge, offering a way to protect against the rapid erosion of purchasing power during periods of inflation. When the US dollar weakens demand for gold rises, yet gold doesn't work as well if investors hold gold against the US dollar. Although gold is not risk free, it is used for diversification to round out a portfolio, safeguarding wealth during high inflation and economic uncertainty.

Gold investment offers protection during the downturn. I allocated part of my resources into tangible gold because it has a long-standing reputation as a store of value. I appreciate alternative assets, but I saw their substantial decrease while my holdings continued to fluctuate. Secure storage requests extra expenses, and other expense was for security deposit, so I decided to trade a small portion.

Thomas Goldfreburg

Investor at Goldfreed