Should You Invest In Precious Metals During A Recession? - When Is The Right Time To Buy Gold?

In the last two decades, we have witnessed more than economic uncertainty - we saw an economic downturn. Then, just as the world recovered from the 2008 crisis, came COVID.

Every world economy experienced a significant hit, and the stock market fell over 30%. With lots of money printed came high inflation, and investors had to turn to precious metals.

Precious metals, including gold, are a perfect means to protect wealth and sometimes even turn a profit. That being said, should you invest in precious metals during a recession?

Let's find out.

When Should You Invest in Gold?

It's natural to think that gold is a good investment - as it always has a steady demand. Higher demand for a certain product (in this case - gold) drives up the price, which can result in a good return on investment.

However, it's principal to remember that gold prices tend to decrease and increase. Gold is just one of the commodities, such as stocks, and many factors can cause the price to fluctuate - as we will discuss below.

If you are interested in buying gold to diversify your portfolio, the key point is to recognize that gold is more of a store of value rather than a regular investment, such as stocks or bonds. When you purchase dividend stocks or other commodities, you buy them according to their predicted growth or earnings.

For example, if you buy stocks for $100 today, and the speculations show that the company will grow 100% in the next decade, in 10 years, your stock will be worth $200. The thing with gold and silver and other precious metals doesn't work that way, as they are considered safe-haven assets.

There is no room for future performance or earning; when investors buy gold, they buy it as a store of value. Gold investments protect your wealth and allow you to keep your purchasing power even during difficult times of rising inflation.

Let's put it this way - rising inflation lowers your purchasing power because it decreases the value of money you have. You will have to use more currency to buy the same things. On the other hand, gold doesn't lose its value due to high inflation, so you can buy gold to protect your purchasing power.

Why Do Investors Buy Gold During a Recession?

Gold has been a prized long-term investment for thousands of years. The value of gold is constant, as it's one of the safe havens to protect yourself from the instability of the US economy.

Gold's price does fluctuate, as well as the price of other precious metals, but it doesn't fluctuate drastically the way stock prices do. Many investors opt for keeping 10% of their wealth in gold rather than the stock market, ensuring they have money in financial crises.

Smart investing consists of picking some assets not because of their future performance but their intrinsic value, such as precious metals. Precious metals are a synonym for high demand for a couple of reasons.

The number-one reason precious metals keep their value is that there is a limited, fixed supply. Although mining companies are excavating gold and silver daily, the supply is still scarce. Also, gold is the most popular precious metal for jewelry-making, which positively impacts the demand.

However, the thing that makes gold one of the smartest investments is that the purchasing power of gold doesn't change much, making it the ultimate safe haven asset. Even when rising inflation decreases the value of the common currencies and causes changes in the stock markets, gold will be worth the same.

With the 2020 global pandemic came bad economic times, and every investor out there wanted to protect themselves from the risk of losing everything. That is why they decided to buy gold and other precious metals.

Is It a Good Idea to Purchase Gold During Recession?

To put it short - yes. Recession affects the US dollar negatively - decreasing its value. The important thing to remember is that gold's value is in negative correlation to the dollar, meaning that when the dollar's value softens, the gold prices go up.

Commodities, such as gold and precious metals, are the first to rebound in value after a financial crisis. When the stock market and other markets go down, gold will go down with them.

However, gold will go down to a certain point when it changes direction. If you invested at the right time, when the value of gold decreased, you could sell it when it started increasing, getting yourself a nice profit.

Moreover, gold and silver have been used to hedge against inflation for decades, and gold is considered a safe haven investment. When you experience political uncertainty in your country, it's good to trade your cash for gold, as it can protect you from volatility and trade it back when things start to look up.

Is Silver Bullion a Better Idea for Investing Than Gold During Recession?

Precious metals are a good investment during an economic downturn, but some precious metals are better than others. Economic collapse can affect many things, and it will affect the price of gold, too. However, gold will balance out quickly, even compared to other precious metals.

Silver, for example, doesn't bounce back as well as gold. Silver will likely not increase during tough market situations, while gold rises every time. The reason for that is largely due to silver being more present in industrial production and industries slowing down during the recession.

Silver is correlated to the stock market, but it's not traded as much as gold, and it's considered highly volatile. Silver is not a poor investment at all, but it is still better to purchase gold than silver during the recession.

Why Does the Price of Gold Increase During Recession?

Well, gold prices are not affected by one factor but rather by a set of factors. The first factor would have to be that gold is not affected by the recession as much as other commodities are.

The demand for gold is global, meaning that a recession in the US would not affect the global demand so much, and it would remain valuable in the rest of the world. Also, gold is a liquid commodity, and you can sell it for cash in most countries.

Stocks, bonds, and similar investments fluctuate more and cannot be sold as easily. In times of distressed markets, gold is still an asset you can easily sell.

Lastly, gold doesn't decay or get damaged easily. Money can be destroyed or stolen - but gold, if stored well, will remain safe in case you need to sell it quickly.

Other Ways to Invest During Recession

Investors need to put their money in something even during a recession - especially considering that the economic crisis can result in catastrophic losses for many. However, the investments have to be put into something safe, but it doesn't all come down to gold and silver.

You still have to keep your portfolio diversified, which is why you should focus on safe stocks, too. During the recession, investors stick to good companies with strong balance sheets and low debt. Those companies are usually the industries that have shown in the past that they do well, despite the recession. Those industries are:

Consumer Staples

Consumer staples such as foods, household products, beverages, hygiene products, and even tobacco don't suffer from lower demand during a recession. During an aggressive sell-off on the market, buying some consumer staple stocks might be a good idea.

Utilities

Some investors opt for companies supplying towns and cities with gas or water. Utilities are necessary, even during the recession, and they are rarely reduced even in uncertain times.

Healthcare

Healthcare is an essential industry, even with an economic crisis or recession. Health services are always in demand, and healthcare sometimes even benefits from world crises, as we all saw during the global pandemic.

That being said, investors invest in gold during the recession and dividend stocks of companies with an established history. Some of the dividend stocks even have the mark of being recession-proof.

Final Thoughts

Now that you know the right answer to whether you should be buying gold during a recession, it's time to put that knowledge to good use. Investing in gold can protect your wealth and allow you to keep your purchasing power even during a financial crisis.

Precious metals can also be an integral part of a diversified portfolio - as they are considered low-risk investments, they can protect you in case your high-risk bonds don't turn the profit you were hoping they would.

There is no better time to buy physical gold than the present - so visit everything The Bullion Bank has to offer - from a wide range of gold coins to every precious metal! Purchasing gold is a simple process with The Bullion Bank, and it can protect you in all economic conditions!