What Happens To Gold If We Enter A Recession or Depression? (GLD, SLV, SGOL, IAU, GDX)
Jeff Clark: Mayan prophecies aside, many of the senior Casey Research staff believe that economic, monetary, and fiscal pressures could come to a head this year. The massive buildup of global debt, continued reckless deficit spending, and the lack of sound political leadership to reverse either trend point to a potentially ugly tipping point. What happens to our investments if we enter another recession or – gulp – a depression?
Here’s an updated snapshot of the gold price during each recession since 1955.
Clearly, one should not assume that gold will perform poorly during a recession. Even in the crash of 2008, gold still ended the year with a 5% gain. And with the amount of currency dilution we’ve undergone since that time, it seems more likely gold will rise in any economic contraction than fall. Indeed, if the response of government to a recession is more money printing, precious metals will be a critical asset to have in your possession.
Even if the gold price ends up flat or down this year, the CPI won’t. Gold’s enduring purchasing power is why we hold the metal.
How about gold stocks?
In spite of the debilitating 1970s that suffered from stagflation, price controls, three recessions, and the Vietnam war, gold producers rose over 600% while the S&P was basically flat. And that includes a roughly 65% fire-sale correction, much like we saw in 2008. To be clear, gold and silver stocks won’t be immune to selloffs if a recession or worse temporarily clobbers our industry. But in the end, we’re convinced they will prevail.
Don’t lose patience with, or confidence in, your gold holdings. What happens to the price over any short period of time is only one chapter in the book of this bull market, and we think you’ll be happy by the time that last chapter is written.
[If you have questions on how to invest in gold in the current market conditions you aren't alone. If you act fast, you can be among those who get to hear Jeff Clark discuss his thoughts and answer selected audience questions. The Gold Investing in 2012 and Beyond: Your Questions Answered! call is absolutely free – but you must sign up by midnight EDT on April 6.]
Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), ETFS Gold Trust (NYSEARCA:SGOL), iShares Gold Trust (NYSEARCA:IAU), Market Vectors Gold Miner ETF (NYSEARCA:GDX).
Jeff Clark is a Senior Precious Metals Analyst at Casey Research. The son of an award winning gold panner, Jeff helps work his family’s placer claims in California, Nevada, and Arizona. Gold is never far from his mind or his heart. While working as a psychological counselor, Jeff invested in the IPO of Snapple, made a bundle, and discovered how very profitable speculating can be. Investing in precious metals and mining became the most natural thing in the world for him. Making money in the precious metals industry — both for himself and his subscribers — is what drives Jeff. He is constantly researching companies to recommend, analyzing the big trends in metals, and looking for safe and profitable ways to capitalize on the gold and silver bull market. He puts his money where his mouth is, and is completely committed to making BIG GOLD the best precious metals advisory for the prudent investor.