over 1 year ago • 1 min
If you were asked to come up with an ideal environment for gold investments to thrive, you’d probably describe something similar to the one we’re in right now – with high inflation and a looming recession. But gold’s hardly thriving: the yellow metal’s price (blue line, right axis) has fallen some 7% this year. Even this week, as US inflation came in higher-than-expected (red line, left axis), gold’s price fell slightly.
That’s not how things went in the 1970s, when inflation was sky-high and gold was the best-performing asset class. And, to be fair, it’s not how things went during the 2008-09 global financial crisis, when we had a deflationary period, and gold soared. Suffice to say, the “high inflation = buy gold” formula isn’t as straightforward as it might’ve seemed. And while gold’s price has risen during every recession since the 1970s, it could be up 80% like in the ’70s recession or just 1% like in the ’90s one.
One factor that might be weighing on gold is rising interest rates. A gold bar generates no income, so you’re effectively losing money owning gold right now, versus keeping cash in the bank. That won’t be news to gold investors, though. And if you are one, it might be because gold’s price has historically moved out of step with stock and bond prices, offering portfolio diversification. Just bear in mind that, as we’ve seen this year, gold can be unpredictable too.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.