Currently, there are many rumors that there will be a global recession in 2023. The economic uncertainty faced by the world can have a domino effect on various sectors including daily life.
A recession is a decline in gross domestic product (GDP) for two consecutive quarters. When the economy is unstable due to a recession, people can save their money in various ways. Gold investment is one of them.
Quoted from the publication Gold Prices During and After the Great Recession by the US Bureau of Labor Statistics, since the 1970s, gold has been used as an investment to protect value against economic instability, such as recessions.
Reporting from the Forbes page, the value of gold and recession actually have an inverse relationship. When the economy weakens, the price of gold usually rises because investors are competing to keep all their assets in the form of gold. During the last three recessions, 2020, 2007 and 2001, the price of gold has tended to rise.
Quoting the Times Of India page, gold is known to show a steady trend and even rise during a recession compared to other assets at risk, such as stocks, mutual funds, bonds, and securities.
Here are some of the advantages of buying gold during a recession, including:
1. Portfolio diversification
Gold is an easy and convenient asset to diversify in different portfolios for investment.
2. Unrelated to stocks
Gold has a negative correlation with stocks, which means that when the stock market declines, the value of gold will rise even more. During the recession from October 9, 2007 to March 9, 2009, the stock market plummeted 56.8 percent. In contrast, gold prices jumped 25.5 percent over the same period.
3. Liquid commodities
Gold is a liquid commodity that can be converted into cash in most countries, unlike the fluctuating value of other investments such as stocks or bonds. When the stock market is sluggish, gold is still an easy asset to cash out.
However, one should not assume that the price of gold will always rise during a recession. For example, during the recession of 1980, the value of gold fell by 5 percent. It can be concluded that considering the overall economic picture during a recession is an obligation before deciding to buy gold