The gold market has historically had an inverse relationship to the stock market and has previously performed well in times of recession and rising inflation. This is why, whenever economic uncertainty strikes, people tend to ask, “Is now a good time to buy gold?”
Many analysts suggest that you buy gold to help your portfolio weather a potential recession, but what should you consider before making a purchase? If you’re curious about gold as a financial hedge, here’s some information to help you understand some of the benefits of buying gold, especially when a recession is looming.
Apart from being nice to look at, it’s important to know what gives gold its worth as a commodity in the first place. Ancient Egyptians used gold to make jewelry and religious artifacts before it became a form of currency in 560 B.C. As trade grew, merchants needed a standard currency. Since gold was already recognized as valuable across the world, a gold coin with a stamp on it became a natural choice for a common trade currency.
Later, in 775 A.D., Britain developed its own metallic currency system with gold and silver coins as the basis. Up until 1913, the U.S. established the bimetallic standard, also known as the gold standard, which tied all money in circulation to either the gold or silver the U.S. had in reserve.
Gold is a physical, liquid asset that’s also a finite resource. Because of its history, strong demand, and international appeal, gold has remained a sought-after commodity for those wanting to build and maintain wealth.
Gold Can Help Preserve Wealth During a Recession.
Unlike paper currency, which tends to lose its purchasing power over time, gold has proven itself over the long term. Since the end of the U.S. dollar’s convertibility into gold 1971, the dollar has lost much of its purchasing power due to inflation while gold has seen significant growth in the long-term, particularly in years of high inflation.
Is Now a Good Time to Buy Gold?
In my opinion, there’s no such thing as a bad time to add extra security to your portfolio in the form of physical precious metals, and those who only follow the spot price of gold for their buying decisions may be missing the bigger picture. People buy gold for many reasons, and some of those have nothing to do with the physical gold market. Here a few of the main reasons people buy gold and how these reasons may relate to our nation’s current economic climate.
Gold as a Hedge Against the U.S. Dollar
According to the World Gold Council, “In years when inflation has been higher than 3%, gold’s price has increased by 15% on average.” This is because people often turn to alternative assets to help secure wealth during periods of high inflation and economic uncertainty—particularly if those assets have a proven track record of maintaining or growing their purchasing power.
Gold as a Safe Haven
Not only has gold historically performed well during seasons of economic turmoil, but it also has a history of growth in times of geopolitical instability. The asset class of precious metals responds differently than other asset classes to the same set of factors that can arise during geopolitical tensions and trade disputes. Rather than fall, gold prices have historically risen as consumers seek out safe-haven assets and demand has increased. This is why gold is often considered a safe-haven asset for preserving wealth when the stock market, paper currency, and other assets are impacted by geopolitical factors.
Gold Diversifies Your Portfolio.
Diversification as a general financial principle is largely recommended to reduce overall risk exposure when certain parts of the economy experience shocks or downward movement. Stock markets can crash and recede. Housing markets can bubble and burst. Certain industries ebb and flow. All these factors provide the potential for volatility within a portfolio. The goal of diversification is to ensure that your wealth is spread amongst different markets and asset classes, in the event that if one goes down, another may increase, providing a level of protection for your portfolio.
Up until the 2008 housing crisis and the Great Recession that followed, real estate was seen as one of the safest diversifiers. But when that bubble burst, people began to expand their search into other commodities to further diversify their portfolio against downturns, and gold experienced incredible growth for the next few years.
Gold has remained steady through some of the worst economic crises of the last 50 years, as more and more people have turned to gold as a way of diversifying their holdings. If you’re not sure whether your portfolio is diversified enough, use our diversification quiz to see how gold can help safeguard your financial future.
When Is the Best Time to Buy Gold?
There isn’t a specific month or time of year when it’s better to buy gold. The strength of gold from an economic growth standpoint often lies in the long term, so trying to time your decision based on day-to-day prices may not be the most helpful tactic.
Instead of only following day-to-day gold prices, you may find it more beneficial to watch gold purchasing trends. For example, people may be more prone to sell their gold when they need liquid cash. This is why, during large sell-offs, many experts say there’s an opportunity to buy gold at a growth position.
Is It Too Late to Buy Gold Now?
In short, no. Despite the historic gains over the last 20 years, gold is still considered a liquid financial asset with more room to grow in the future—particularly during economic downturns. This provides consumers with a level of potential stability that may be harder to find in other asset classes.
Even during steady economic times, gold maintains a high level of demand and can experience growth. So regardless of when you buy, gold can serve as a wealth preserver, diversifier, and hedge against future economic downturns.
Ways to Buy Physical Gold
If you decide it’s time to move forward and add physical gold to your portfolio, it’s can be helpful to understand your gold buying options.
Gold bullion is a bar or coin of pure gold (typically between 99.5 and 99.9%, with the exception of the popular Gold American Eagle bullion coin). Depending on the amount you purchase and your comfort level, you can store gold bullion in either a safe at your home or a safe deposit box. If you’re ready to buy gold bullion but don’t know where to start, you can request our free Gold Information Kit.
For those interested in the benefits of owning gold within a retirement account, a gold IRA could be a great option. A gold or precious metals IRA allows you to experience the benefits of both a traditional IRA and precious metals ownership while allowing a secure depository to store your precious metals. A gold or precious metals IRA is also permitted to include traditional paper-based assets like stocks and bonds as well as other alternative assets like physical precious metals and real estate.
If you’re interested in learning more about a gold IRA, you can request a free Gold IRA Information Kit from U.S. Money Reserve.