How does gold perform under different economic conditions?

The interplay of growth, inflation and key interest rates can lead to four different economic conditions that can have a significant impact on the performance of individual asset classes. In a new study, the World Gold Council has taken the current geopolitical signals from the US as an opportunity to analyse how gold could perform under the influence of these varying economic circumstances. The study draws on historical US economic data published by Bloomberg, from 1973 to the end of 2024. The data served to empirically analyse the performance of gold as well as that of US stocks and Treasuries over this long period. The four economic conditions analysed include the so-called ‘Goldilocks’ scenario, reflation, stagflation and deflation.

In phases of stagflation, gold outperformed stocks and treasuries

The study shows that stagflation in the US – i.e. slowing economic growth alongside rising inflation – saw gold achieve a significantly higher increase in value since 1973, averaging 27.74 per cent, than Treasury bonds at 8.64 per cent and stocks at -1.47 per cent. In contrast, gold lost 1.98 per cent in value during ‘Goldilocks’ phases – accelerated growth with slower inflation – while US Treasuries gained 4.35 per cent. Naturally, the stock market benefited the most with an average increase of 15.52 per cent.

Reflation: Gold also performed better than stocks and Treasuries  

In phases of reflation – accelerated economic growth accompanied by rising inflation – the gold price rose by an average of 6.36 per cent, outperforming the stock market with 3.89 per cent and Treasuries with 1.39 per cent. In deflationary phases – slower growth combined with slower inflation – the gold price rose by 5.9 per cent but was outperformed by the stock market with 14.01 per cent, as well as by Treasuries with 10.87 per cent. The study exclusively examined relatively short periods of several months to a maximum of a few years. The long-term appreciation of gold, which has skyrocketed to almost 3,300 per cent since 1973, was not assessed, nor was the precious metal’s contribution to portfolio stability.