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Gold performance during a recession

News Arnulf Hinkel, Financial Journalist – 05.09.2022

In his announcement of further interest rate hikes, Fed chair Jerome Powell said that a recession would be accepted – to a certain extent – to significantly lower US inflation. The US stock markets and the gold price reacted by devaluing, leaving investors to wonder: Will the US gold price continue to weaken, or will it strengthen in the event of a recession? A look back at the history of US recession phases over the past 50 years provides an answer that is, at least, empirically supported.

Gold outperformed the US stock market in every recession since 1973

According to an analysis by Bloomberg, gold in US dollars has outperformed the American S&P 500 index by an average of 50 per cent over the course of all recession phases since the end of the Bretton Woods system 50 years ago. An analysis of gold performance during the ten most dramatic slumps of the S&P500 Index by US investment platform goldsilver.com also offers clear results. At the time of the oil crisis, from early 1973 until October 1974, the gold price rose by 139.4 per cent, while the S&P 500, in one of its sharpest declines, dropped by 48.2 per cent. During the subprime crisis, which later turned into the global financial crisis, the S&P 500 lost a full 56.8 per cent from October 2007 to March 2009, while the gold price increased by 25.5 per cent.

Performance is not everything – especially in times of crisis

Many long-term investors see gold, above all, as a store of value and protection against inflation. In times of extreme crisis, they consider preserving their assets’ value as more important than the best possible price performance. In view of significant inflation and the danger of a simultaneous recession due to a possible energy shortage, the spectre of European stagflation is looming – and poses a touchstone for gold to prove its qualities as a safe haven.

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