What Happens to the Price of Gold During a Recession?

Gold has long been valued as a safe haven and a hedge against inflation. So, it’s no surprise that the price of gold typically increases during a recession.  

Historical data indicate demand—and prices—for gold rise during and after recessions. While there is no guarantee that future prices will follow the same pattern, investors can feel good knowing that gold has a track record of performing well during economic downturns.

Is gold a safe haven during a recession?

A safe haven is an asset that is expected to maintain its value even in difficult economic times. Based on historical data, gold has served as a haven during previous recessions. It often increases in value when stocks or other assets decline.

“Gold and uncertainty are strongly linked,” according to the Economics Observatory, a U.K.-based project that provides information from economics experts.

In times of economic uncertainty—such as during a recession—demand for gold often increases. That, in turn, raises the value of gold. 

However, gold prices don’t always track inflation closely. As a result, gold is considered a good safe haven by many, but its record as an inflationary hedge is less clear, Economics Observatory says.

When preparing for a recession, I recommend focusing on things you can control. I advise building your emergency funds, paying down debt, and diversifying your  investments. I don’t recommend making drastic changes to your portfolio and don’t recommend having more than 10% of their portfolio in a single investment.

Chloe Moore, CFP®

Has gold performed well during recessions?

Gold has gained in value in five of the past seven U.S. recessions. In one of the two recessions in which gold lost value, gold stocks saw gains even though the price dropped.

The two recessions in which gold did not perform well were the economic downturns of 1981 and 1990.

The price of gold had recently hit a record high going into the 1981 recession. An aggressive monetary policy from the Federal Reserve apparently led to falling gold prices, according to an analysis by Schroders, a global asset management and advisory firm. During the short 1990 recession, the firm notes central banks were selling off gold, thus lowering its price.

According to LBMA, an independent precious metals authority, a recession may be broken down into four phases.

1. Phase one: Run-up phase in which an economy transitions to a downturn.
2. Phase two: Unofficial recession, usually lasting one quarter, in which the economy has slowed down, but a recession has not yet been officially declared.
3. Phase three: Official recession that runs from the start of phase two to the end of phase four.
4. Phase four: The last quarter of a recession in which the economy shows signs of recovering.

LBMA data find that in four out of seven recessions between 1970 and 2009, gold prices dropped in phase one before rising during the recession. Interestingly, in 1980 and 1991—the two recessions in which gold did not perform well—gold prices were up in phase one before dropping during the recession itself, likely for the reasons mentioned above.

Gold demand may continue to climb after a recession, as well. After the Great Recession of 2008-2009, the producer price index for gold ores increased substantially for years. According to the Bureau of Labor Statistics, the average percent change in the PPI for gold ores was as follows:

• 2008: 2.6%
• 2009: 12.8%
• 2010: 27.4%
• 2011: 32.8%
• 2012: 5.4%

As a result, it may be inferred that gold continued to be an in-demand investment even after the economy recovered.

What should we expect gold to do during future recessions?

Recessions seem to be an inevitable part of our economic system. The question isn’t if our country will enter a recession again but when.

Based on historical data, it seems likely that gold prices will increase during the next recession. They might dip slightly during the run-up to the recession—phase one, as defined by LBMA—but then see a boost as the economy weakens.

However, as with all investments, there are no guarantees. While data from past recessions is instructive, no one can say what will happen to the price of gold during the next recession.

What you need to know to invest in gold during a recession 

If you want to invest in gold during a recession, phase one may be your best bet to get a good price deal. Once a recession is in full swing, you may pay a premium for your purchases.

Of course, rather than waiting for a recession, the best time to buy may be well before an economic downturn, like where we are now, in October 2024. That way, you already own gold before prices rise. This could also position you well to sell some of your assets at a significant profit should you need money during the recession.

Having a diversified portfolio that’s appropriate for your risk tolerance and goals, along with a good cash cushion, is a great way to prepare for a recession.

Chloe Moore, CFP®

Best ways to invest in gold before or during a recession

When it comes to making a gold purchase, there are several strategies you can use:

• Gold IRA: This investment vehicle allows you to save for retirement and save on taxes at the same time. However, be aware that you may have to pay a penalty if you decide to withdraw before age 59½.
• Hold physical gold: To get the benefits of gold without any restrictions on when you can sell it, buy and hold physical gold outside an IRA. You’ll forfeit the tax benefits but have greater flexibility in how you use your investment.
• Invest in gold stocks: You may benefit from a bump in gold prices without the hassle of storing physical gold by investing in gold ETFs or gold mining stocks. 

Getting professional guidance is always advisable before making a financial decision. The best gold IRA companies may have specialists to help walk you through your options.