What Happens to Precious Metals During a Recession?

There have been some serious economic disasters in the past decade and a half. 2008 saw the subprime mortgage crisis, where predatory lending resulted in mass foreclosures with ramifications across broader markets. 

2020 brought the COVID Crash. Economies around the world ground to a halt. People were laid off or started working from home. The stock market quickly fell 34% but managed to recover quickly. Massive amounts of money were printed, leading to serious inflation.

During these economic downturns, savvy investors were able to use the precious metals market to either protect their money or even turn a profit.

The short answer is yes. Gold typically moves inversely to the value of the dollar and also the stock market. If the dollar is strong, gold prices tend to dip. Commodities like gold are also the first to start rebounding during an economic downturn. 

In other words, when markets start going south, gold will go with it. However, at a certain point, it will start changing direction while everything else continues to plummet. If you invested as the value decreased, you could sell as the price of gold started going back up — hopefully netting a nice profit. 

Gold has been used as a hedge against inflation for a long time. Gold can also be used as a safe haven investment. During times of political uncertainty, putting your cash in gold can protect it from volatile markets. You can always sell it once things have begun to stabilize. 

As mentioned above, gold will initially be pulled down with everything else during a recession. But it will be one of the first things to bounce back and increase in value throughout the recession.

Silver, on the other hand, doesn’t have the same track record. Silver rarely increases in value during market selloffs. This might be due to silver having a higher industrial usage than gold. During a recession, industrial production slows down. As a result, the demand for silver decreases. 

While silver does have a low correlation to stocks, it is thinly traded and volatile. It’s certainly not a bad investment, but in the context of precious metals to invest in during a recession, silver loses out to gold.

There are many ways in which to invest in precious metals. Some investments are direct and some are indirect. Let’s explore some of your options.

Speculating on gold futures can be very lucrative; however, there is risk involved. You are essentially betting that the value of gold or other precious metals will increase or decrease. If you were right, you can make a lot of money very fast. If you were wrong, though, your brokerage will need you to keep putting money down to cover your bet. 

Futures speculation requires a lot of knowledge of what to look for in the investing world.

Goldmine investment is an example of indirect investment in precious metals. Before buying stock in a goldmine, it would be wise to do extensive research on the company — just like you would do with any other stock. If they have a proven track record, you may be on your way to seeing significant gains. 

Exchange Traded Funds, or ETFs for short, are bundles of stocks of every conceivable asset class. An ETF that consists of many different gold mining companies might be a better way to go about investing than putting all of your money into the stock of just one gold mining company. 

A goldmine ETF is like spreading your investment out over an entire industry instead of hoping one company does well. 

Not all goldmine funds are created equally. Make sure you have done your due diligence and thoroughly researched the ETF along with the companies it includes. 

Investing in physical gold bars or coins is an appealing prospect to many investors. Having a tangible asset in your hands is a fantastic feeling. 

The most common way to acquire gold and silver is to purchase bars of bullion online. Bullion comes in a variety of different weights — generally 1 gram to 12.441 kilos. While everyone would love to have a room full of 12.441-kilogram gold bars in their home, it’s actually easier to sell your gold in smaller denominations. 

When you buy gold there are some costs to consider. Make sure you research how much it is going to cost to have the gold sent to you. You are also going to need a place to store your gold where it is safe and secure. Make certain that the gold being shipped to you is covered by insurance.

Buying gold online is a simple process. The U.S. Gold Bureau makes buying gold and other precious metals safe and easy. The U.S. Gold Bureau also offers people the option of including precious metals in their IRAs. There are so many ways to invest in silver, gold, and other precious metals. If you are interested in taking the next step forward, please contact us for a consultation.