The Appeal of Gold During Recessions

During the 2008 financial recession, many people became aware of a peculiar market event for the first time. As the value of the dollar went down and down, the value of another asset rose up. This seemingly miracle asset was none other than gold. Recessions are mentally trying times for everyone affected. However, whenever these difficult times come around, investors rush around gold. What could possibly be behind this unique quality of gold?

 

 

The Dollar vs. Gold

There’s a very important reason why investors stock up on gold to survive the market downturns. Gold is not valued alongside the dollar. Rather, gold is valued inversely proportional to the dollar. When the price of the dollar is soaring, the spot prices of gold are down in the dumps. However, when the reverse occurs, as it does during a recession, the value of gold skyrockets. Even if cash assets like real estate or stocks largely disappear when the market takes a turn for the worse, gold can protect an investor’s wealth. Gold is thus regarded as a “hedge” against market volatility by veteran investors.

It’s interesting to wonder why gold is valued in this manner. It could be possibly due to the historical value of gold as a sure sign of wealth. Or more likely, gold is duly valuable because it has to be dug out of earth, literally. Central Banks cannot “print” gold like it does paper money. People cannot artificially create gold, no matter for how long alchemists have tried. Because gold is a physical asset with its own intrinsic value, it is not subject to the twists and turns of the market in the manner that paper money is.

Why Own Gold?

The primary reason the wealthy and the financially savvy stock up on gold is that it will be the fallback currency, so to speak, in case the financial market completely crashes. This is an apocalyptic scenario, but not an impossible one. The U.S. has already experienced a near apocalyptic financial downturn in the Great Depression. The Great Recession of 2008 was just a reminder of what could go wrong. The market is many things, but it’s always certainly unpredictable. It’s simply foolish to assume that a bull market would sustain decades into the future. Therefore, to plan for the unthinkable, investors should own physical gold.

Stocking Up on Gold

To enjoy the benefits gold offers as a fallback currency, you need to own gold in its physical form. Stocks in gold mining companies don’t count. Even regular people can buy gold in various amounts from dealers like Lear Capital.

It’s important to understand that investors should own gold as bars, bullion, or nationally minted coins. Gold is, of course, available in various forms as collectible coins and jewelry. The value of gold is determined by weight, not aesthetic appeal or historic value. So, when you own gold, it should be measured in a standardized manner, as in bullion or bars. Do not spend thousands of dollars buying gold jewelry or coins. Check gold spot prices for the week, and buy from a reputed dealer that sells an ounce of gold at a reasonable rate.