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What Happens to Gold and Silver During Recessions?

One of the most talked about issues when a recession appears on the horizon is what the price of gold does. 

Why?  Because the price of gold provides insight into what investors think will happen to demand (driven by the economy) and inflation (driven by pricing pressure). 

With this background in mind, what have the prices of gold and silver done during the past two global recessions?  Here is a look.

The 2008/2009 Recession

First, a look at the most recent recession.   The black line, aligned with the left axis, is the price of gold leading up to and during the 2008/2009 global recession.  The red line, aligned with the right axis, is the price of silver. 

Curiously, the price of gold moved relatively little during the first half of the global financial meltdown.  At about halfway through the recession, the price of gold moved up sharply.  This likely stemmed from investors’ concerns that the central banks around the world were printing too much money and would eventually cause hyperinflation.  

After shooting up sharply, the price of gold gave up some ground at the end of the recession. 

Interestingly, the price of silver was not as shifty.  When the global financial meltdown officially became a recession, the price of gold shot up, peaking at around 10.40/oz. in March 2008.  The world’s second most well-known precious metal than gave up ground and drifted lower over the next six months before bottoming at 5.50/oz. in October 2008.  Silver then began to appreciate again until February 19, 2009 at 9.90/oz., after which the metal fluctuated relatively closely around this value. 

The experience of the two metals’ prices suggests perhaps one thing – have patience with your ownership.  The prices will fluctuate, but overall provide protection against fiat currencies and inflation, among other things.

The 2001 Recession

The 2001 recession is the second look.  Again, the black line is the price of gold, which corresponds with the left axis.  The red line is the price of silver, with its price being the right axis.

Interestingly, the silver price movements were quite uneventful.  Apart from one trading day, the price of silver fluctuated around 3.0/oz. for most of the 2001 recession. 

The price of gold is a different story.  The price of gold started the recession at 178/oz. and ended the recession at 191/oz.  The overall gain for the recession portion of the year was about 7.3 percent.  At the time, given the drops stock markets were having, the 7.3 percent was a very healthy return. 

The return, of course, was not stable.  For the first bit of the recession, the price of gold did nothing.  From April 10th to May 24th, the price of gold moved sharply higher, from 178/oz. to 202/oz. 

Gold then gave up some of its gains before the recession ended. 

What is the lesson here?

Perhaps the one self-evident lesson is that gold and silver are good investments for recessions.  When global stocks were plummeting, the prices of gold and silver did well, comparatively speaking. 

These two precious metals are virtuous options when diversifying one’s portfolio in preparation for a potential recession.